How can the world’s most right wing administration delve into the biggest act of socialism since the Great Depression? By allowing the economic fundamentals to be skewed towards speculation rather than production, the Bush administration has accelerated the push towards short term profiteering.

The last 30 years of global economic policy has encouraged this move away from manufacturing and towards speculative services. CDO’s and the like are the effect, Tax policy is the cause of such lucrative arbitrage.

Tune into the Renegade Economists tomorrow as we interview Dr. Michael Hudson on one of the biggest financial headaches of the decade. Dr Hudson was the former Chief Economic Policy Adviser for the Kucinich for President campaign.

The bailout of Fannie Mae and Freddie Mac could see up to $240 billion diverted away from crucial areas like health and education. But will this propping up of the market assist in the long run? Millions of US foreclosures on properties are occurring, with another raft of Adjustable Rate Mortgages to kick in with higher rates during the month of October.

Foreclosures occur because land and property was purchased at levels that were beyond the wages of the working class man. They paid speculative prices, expecting land and property prices to continue upwards forever – “You Never Lose on Property”. As we are seeing, you do if you buy at the wrong time, when land prices cannot be passed on to another optimistic buyer.

Land prices naturally need to fall back to what can be realistically earnt from that location, that family home. This bailout will postpone the fall, driving the downturn longer and further. This bailout mentality is what the Japanese tried following the last property based crash of the early 90’s. They had a 16 year recession as downward curving land prices strangled growth whilst all sorts of financial trickery was attempted.

It is only when land rents fall back below 30% of GDP that there is enough money left for investors and consumers to restart the economy. With tax policy encouraging the hoarding of land and housing, we are seeing the astronomical outcome of over-investment in housing, with US housing vacancies (that some state at over 20 million vacant homes) set to drain the economy of its growth potential for years to come.

And now the reports are out that the Big Automakers want a handout as well.

Switch taxes onto land and off wages so that speculation is deterred, hard work is encouraged and the red tape is removed from the crime scene of small business mutilation.