In a capitalist economy, losers are expected to take losses and winners to gain. Private enterprise is best able to allocate capital efficiently and, where it fails to do so, markets make adjustments and capital is reallocated to efficient users. This basic tenet supports good and productive assets moving from the hands of weak players to stronger. Where this is not possible, the US system gives the government a hand in fostering that move through an efficient process called bankruptcy or reorganisation. This rule of markets and of law has always been the basis of our national supremacy in innovation and the reason ours was the world’s clear choice of a reserve currency. That was the world we lived in previously.

Our elected officials have repeatedly demonstrated that even equity holders, who are supposed to have the most subordinated claims on assets, cannot be allowed to take losses and instead believe we should all communally share in losses that result from poor allocation and risk management decisions. We have nationalised the losses from Bear Stearns through a transfer of risk on to the federal government’s balance sheet and have now nationalised the losses generated by Fannie’s and Freddie’s poor management and functionally taken $5,000bn in obligations on to the government’s balance sheet. This has been done even though every equity or debt offering of Fannie and Freddie explicitly states that these “are not guaranteed by the US and do not constitute an obligation of the US or any agency or instrumentality thereof other than” of Fannie or Freddie.