Monday, February 23, 2009

Will Obama Nationalize the Nation's Major Banks?

A few articles on a radical economic idea that's rapidly gaining traction

Eye opening morning story story from The Australian (of all places), a Wall Street Journal affiliate. In the wake of last year's patently ineffective TARP bailout, and as economic policy makers contemplate blindly dumping more hundreds of billions of dollars into the nation's obviously insolvent banking institutions, the discussion is suddenly turning to what would have been considered "the unthinkable" just a few months ago -- the nationalization of America's largest banks. Here's the lead:
Despite tepid denials from the White House, there has been a steady drumbeat of signals over the past few days indicating the bank plan is under consideration, including comments from Federal Reserve chief Ben Bernanke, who acknowledged that government takeover was a possibility.
"Whatever actions need to be taken," Mr Bernanke told journalists when asked last week about nationalisation. "I think there's a very strong commitment on the part of the administration to try to keep banks private, or return them to private hands as quickly as possible."
While some top administration officials are said to be against any sort of nationalisation, Chris Dodd, head of the powerful banking committee of the US Senate, said on Friday he was "concerned we may end up having to do that, at least for a short time".
Unthinkable just months ago but becoming more likely as the US Government and Federal Reserve commit trillions of dollars to try to underwrite a financial system many say is bankrupt, a government takeover of the US banks would wipe out shareholder funds.
Bank shares started to plummet in the US on Friday (Saturday AEDT) and rebounded only after the White House was forced to reiterate its support for the private banking system.
Read the full article here:
Plan to nationalise American banks
The story also mentions Noriel Roubini,who's been an accurate economic forecaster in the past, and who has been strongly pressing the case for "temporary" bank "nationalization" during recent days.

We link the full text of the most recent article Wall Street Journal article on Dr. Roubini's viewpoint here:
'Nationalize' the Banks
And for those folks who still don't believe the idea of bank nationalization has gone mainstream, be sure to check out Nobel Prize winning economist Paul Krugman's op-ed piece in this morning's New York Times:
Banking on the Brink
Now that big-shot economics heavyweights like Paul Krugman are weighing in on ideas like this, you have to believe the administration will be listening very closely. And here's an interesting side note. Krugman doesn't like the term "nationalization." He prefers to call it "pre-privatization."

"What's in a name? That which we call a rose By any other name would smell as sweet." - Romeo and Juliet (II, ii, 1-2) No?

So what say our gentle readers about all this? If this idea is implemented, and private institutions like Bank of America and Citigroup are taken into government receivership, rather than to be allowed to remain on the public dole, will it signal the final end of the American capitalist economic system as we know it? Or does the plan of Roubini, Krugman, et. al represent a more sensible and economical way to forcefully squeeze out the malinvestment within in our US financial sector? (Of course there's always the option to just stand back, and let these banks fail. Given the ideological makeup of the present congress, will predict that's a very low probability alternative.)

Having asked these questions, by the way, we do recognise one major obstacle to the implementation of a federal government bank nationalization plan: the Obama administration is presently stacked with trusted allies and stooges of the big banks, who'll no doubt argue for protecting the interests of their fat cat banker pals in the private sector:
Trouble at Treasury - Geithner Gets the Keys to the Henhouse
Don't let the cat get your tongues, O Gentle Ones. Assuming that the government will engage in massive intervention (which we calculate to be an absolute certainty,) which is the more sensible plan... you know... from the point of view of the taxpayers?

So many questions...so few answers.

13 comments:

Curmudgeon said...

You ask:

If this idea is implemented, and private institutions like Bank of America and Citigroup are taken into government receivership, rather than to be allowed to remain on the public dole, will it signal the final end of the American capitalist economic system as we know it?

No, Rudi, it won't, any more than the "nationalization" of banks when FDR took office spelled the end of the capitalist banking system in the US. It will work exactly as it usually works when banks fail: govt. take over, resale of good parts/assets to strong banks or new investors, govt. swallowing the bad assets and bank stockholders getting nothing. It's the Resolution Trust model, and what has already happened to several banks, and will happen to more.

The government will not permanently "own" or operate the banks. This is a structure for closing banks that have failed, selling whatever assets they have to solvent banks or new investors, and purging the system of the rest. This is what he should have started doing from day one. Just as with the S and L crisis [which Congress hid for over a year so it would not become an election issue], delay will, in the end, cost us taxpayers billions more than it needed to.

And the "pre-privitization" quip was not Krugman's. He offered it tongue in cheek, as a way to get around the term common visceral reaction to "nationalization."

Southsider said...

"Now that big-shot economics heavyweights like Paul Krugman are getting onboard"

I believe Krugman has been "on-board" from the start. He's generally one of the first with good ideas.

RudiZink said...

LOL, Curm. If by that you mean to answer "yes" to my second query... "Or does the plan of Roubini, Krugman, et. al represent a more sensible and economical way to forcefully squeeze out the malinvestment within in our US financial sector?," then I'll tote you vote as in favor of nationalization.

Thanks!

Here's a good supplementary article for ya's on the subject of Krugman's article, BTW:

Krugman: Nationalize Now, Before Everything Really Falls Apart

"And the "pre-privitization" quip was not Krugman's. He offered it tongue in cheek, as a way to get around the term common visceral reaction to "nationalization."

Ya think? ;-)

Loved Krugman's dig at Greenspan too:

"Comrade Greenspan"

Perfect!

RudiZink said...

Southsider... I'm happy that Krugman is finally and forcefully speaking out on this. Assuming that the government will engage in massive market intervention, this is definitely a national discussion that's much needed.

What's better (assuming massive government intervention)?

To continue to blindly pour billions into the very corporations who caused the current financial mess in the first place, or to force these insolvent corporations into what's essentially bankruptcy-type reorganization?

RJ Svengali said...

A bank should rise and fall on its own merits.

Corporations should not have access to bankruptcy court.

Defend our borders, and print our money; this is the roll we would like to see for the federal government.

ozboy said...

RJ

They're gonna be printing our money alright!

Curmudgeon said...

Since the topic seems to be economics, here's a fun little quiz that just went up on the DailyKos blog:

One of These Things is Fiscally Irresponsible
by Devilstower
Mon Feb 23, 2009 at 10:00:04 AM PST

Read all the instructions carefully before selecting your answer:

One of these things is not proper management of the nation's finances. Select from the examples provided.

Example A
Breaking into the Federal Reserve, taking out pallets loaded with hundred dollar bills, loading them onto C-140 transport planes, shipping them to Iraq, and handing them out indiscriminately in pizza boxes stuffed with money.

Example B
Cutting the deficit by two thirds after allowing a tax break that was written as a temporary measure to expire.

Final instruction. Choose as if you're a Republican.

Also From The Bayou said...

What a dumb Question, Curmudgeon.

Interesting that your Daily Kos 'frend' has been able to boil it down to only two entirely irrelevent questions.

And here for a while I thought you were "smart."

Definitely not the first socio-political mistake you've made in your life, I'll propose.

What a posing POS you are!

oh ya said...

Ok. Here is my view on the nation bank. Lets repeal all taxes and when ever the government needs funds they just print mo money and flood the system with all this paper and then there would be no rich or poor and then we would all be happy.
I vote for all that stuff and stuff like that and that.

harpo said...

Rudi, I would think you would support Krugman. His column in today's NYT says that right now all the Obama admin seems to be doing is turning tax payer money over to capitalist fat-cats -- your dreaded "right wing socialism." Temporary nationalization, as Krugman argues, seems to be the way to go.
Do keep in mind, that many of the founders of this great nation were actually for permanent nationalization of the banking industry, not just temporary.

danny said...

I finally liked a Krugman article (the one Rudi posted.)

What Obama is doing is an even more appaling free money giveaway to the Wall Street bankers than what Bush did.

Sad. The bubble of optimism for Prez-O has already popped.

What will it cost us said...

They could of given everyone over the age of 16 the bank bailout which would of been $260,000 a person. We could of paid off our mortgages, and then have plenty of money left over to buy Americian made products, if we could find any....

Curmudgeon said...

Danny:

Ah... all of the first half of the TARP funds, expended under Bush, went to the banks. And we have no idea what the banks did with the money.

Much of the remaining half of the TARP funds is going to acquire troubled mortgages. So seems to me, on its face, it cannot be sustained that Obaman's handling of his half of the TARP money has been worse than Bush's handling of his. Not so far, anyway.

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