Bank Nationalization: "As American As Apple Pie"
Even before the panel discussion commenced, George Stephanopoulos knew that this would not, in actuality, be a debate. The topic was the nationalization of major U.S. banks, which just a few weeks ago was treated as either inconceivable or illogical. But with the credit crisis growing worse and the chorus of political support growing louder, the ABC host opened up a segment with more of a statement than a question.
"Over the last several weeks, you have seen something that was radioactive even six months ago, the idea of nationalizing major banks in this country, moving towards something of a consensus," Stephanopoulos said.
There wasn't a panelist who disputed the idea -- indeed, naysayers were mocked. Nobel Prize-winning economist Paul Krugman scoffed at the notion that the White House was one of the few remaining holdouts, picking apart the Obama administration's comment as a sophisticated sidestep.
"That Gibbs statement was masterful," Krugman said of the remark by Obama's press secretary that a "privately-held banking system" regulated by the government was optimal. Some interpreted it as White House opposition to nationalization, but Krugman argued otherwise. "It sounded like a reassurance [but he] was actually saying what everybody believes. Nobody wants the government running the banking system for any length of time."
Rather, Krugman argues, the government's involvement should be temporary -- just long enough to wipe out shareholders, fire management, clean up the banks, and quickly resell them into the marketplace. He added that it seems likely that there is no other choice.
George Will, who at times has been diametrically opposed to Krugman on economic matters, seemed to be acknowledging much the same when he opened the discussion with his usual bit of highbrow wit.
"This week, a Democratic administration reproved Alan Greenspan for reckless talk on nationalization," he said. "That's how 'through the looking glass' we are."
The debate at which the panelists finally arrived was not over nationalization itself, but how to describe it using a less loaded term.
"Pre-privatization," offered Krugman.
"What is a leader's job but to put context around it," Suzy Welch remarked to her fellow panelists. Welch, a former editor of the Harvard Business Review, co-writes a column For Business Week with her husband Jack Welch.
The argument, the panelists were saying, was now moot. The insolvency of the banking system not only demanded more direct government intervention, but the process was already taking place.
There was Nouriel Roubini, the economist known as Dr. Doom for predicting the current downturn, who champions a quick and brief nationalization period as the pill that must be swallowed.
"There are some banks that are so insolvent, their assets are well below their liabilities. We have already put a huge amount of money as a government into these banks. This is not any more even a partisan issue, when you have Alan Greenspan, [Sen.] Lindsey Graham and others saying we want a temporary nationalization..."
There was the conservative George Will:
"With credit now treated essentially as a public utility, the difference between what we have and what nationalization would be is marginal. One number: the market capitalization of Bank of America is $19 billion. Since October they have received $45 billion in public funds. So what's the difference?"
And then there was Krugman, who summed it all up by calling nationalization "as American as apple pie."
"We have nationalized 14 banks already this year. We don't call it that but there were 14 banks, two a week, that the FDIC seized because they didn't have enough assets to pay their depositors. The Federal Deposit Insurance Corporation says, 'ok, we are taking over. We are cleaning out the stockholders.' We are going to do exactly, as Nouriel said, we should be doing for some major banks. So actually nationalization as properly understood is probably as American as apple pie."