Krugman: The Case For Nationalization

New York Times:

Comrade Greenspan wants us to seize the economy's commanding heights.

O.K., not exactly. What Alan Greenspan, the former Federal Reserve chairman -- and a staunch defender of free markets -- actually said was, "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring." I agree.

Read the whole story: New York Times

Comments

[capitaldysfunction]

Agreed, Paul Krugman appears to be right about nationalization. But he also may have been wrong about Timothy Geithner being the appropriate candidate for the Treasury secretary. Or was Timothy simply the best of all likely candidates, all of whom Paul Krugman was familiar with? If Timothy can't bend on the banking system's realities, maybe it is time for Paul to urge Mr. Geithner's immediate replacement with someone more up to the job.

There isn't a lot of time and money left.

[strangerinthenight]

In a stunning reversal, the President after summarily dismissing Krugman has sent his Secretary of Finance, Tim Geithner, to announce the RECOVERY PLAN is stalled, and it needs overhaul. The problem is too big, to complex. After all the build up and we held our breath - there is no plan after all - rather a skeleton without meat.

Stiglitz Krugman Galbraith et al - these leading economist have all but rejected the President's Stimulus Plan, and so-called RECOVERY plans for the banks AND including NATIONALIZATION. The President continue to ignore them, rather pushed harder for his "plans" as the ultimate solution.

Yet again, in a stunning reversal, the President is now considering Nationalization. These so-called recovery plan, stimulus bills were in its 10th revisions. Nothing cohesive to swell confident by the market and the public. So far all these bailouts have failed - IMAGINE OVER 350 billions to the banks, AIG, the Big 3 - they are coming back for seconds, their hands with BIG HATS, to loot the National Treasury. Every failed bail outs are tons of bricks falling on our back.

Our economic and financial systems are archaic and broken down. It needs to be dismantled, and the President knows that very well. He just don't want to accept the painful fact. He may have 60% majority votes, but yet another revision will end up no where but the graves of failed stimulus and failed bailouts.

Where is the mark of EXPERIENCED President ? It's a fair

[joebhed]

I hope he doesn't mind, but the swiftgoat blogger posted this later. I like it because it takes all that "how do you know this or that may happen" logic, if you will, and puts the question back in the hands of the people who decided it was a good investment risk in the first place.

Here's how he explained it from another blog -Ezra Klein's blog in American Prospect, paraphrasing:

Stockholders of walking dead banks: Your shares are worthless.
Creditors of the banks: You now own the banks. Do with it what you will.
Fed Govt: You are out of it.

Change of ownership.
Those who took the risks (stock holders), take all the losses.
Or, if they decide to "hold-em", maybe, the gains.
Fed Govt does not own anything, does not cost taxpayers anything.

Sounds OK to me.

[HamboneandFlippy]

Notice the photo of Krugman accompanying the story? It's a picture of him accepting a Nobel prize. The guy knows what's going on -- let's listen to him. Actually, let's do exactly what he recommends.

[jd16]

He isn't God...you might want to remember that. And while he is a genius, he sometimes seems to be too politically motivated.

[MBryant]

The problem with Nationalization as presented by Greenspan and Kruman is that it presents another temporary fix for a fundamental, strategic problem: Banks should not be capitalized on Wall St.

Wall S. causes companies to look for quater to quater earnings and these are not what we want in banks which we want to invest for the long term. Wall St. rewards rapid growth and windfall profits.

For banks, we need a new instrument - not unlike the over the counter markets - which trade in banks only and which have mechanism to slow churning and prevent speculation. These instruments could have some tax protection in exchange for their lack of liquiity which would encourage them to be domestically owned (as foreigners would not generally pay tax anyway.)

So ..yes, nationalize the banks - just long enough to recapitalize them into new capital instruments.

[Viper]

I'm sorry but what you say makes no sense...

Its not capitalization that caused the problem.. eh gads it was lack of any regulation... none on a 14 trillion dollar mortgage market, none on credit rating institutions, none on credit default swaps and none for the mortgage brokers....

And if there gad been this would just have happened later as real wages declined, no net private sector jobs created in 8 years, outsourcing, borrowing covering up the loss of real wages, so ineffect we it was only a metter pof time the deafults on our debts started.

Greed was caused by removing the top tax brackets and rewarding massive greed, but promising trickle down... which trickled to China, built new plants there and 5 million MFG jobs followed.

Regards.

[joebhed]

I don't get it, Paul.

""To end their zombiehood the banks need more capital.""

Really??

Volcker explains the nature of the ENTIRE problem today as the ENTIRE financial system cannot make its DEBT SERVICE PAYMENTS.

We can't pay our debt service costs on the TOTAL DEBT out there.
There is not enough MONEY available to do that.

It's NOT AVAILABLE.
It doesn't exist !

So, even if we use ALL the TARP II and ALL the Stimulii money being created - about $1.5 TRILLION, the net sum of the game is a real INCREASE the TOTAL DEBTS, and therefrom, the total DEBT SERVICE PAYMENTS due.

Paul, the banking system is not the cause of the problem.
The banking system is not the problem.
The banking system is a symptom of the problem.

If tall Paul is right, then it is THE MONEY SYSTEM that is broken.

The debt-money system of the private federal reserve bankers is broke and broken.

Don't waste taxpayer dollars trying to figure out how to inject capital into a banking system THAT FAILED ITSELF.

We don't deserve it and we don't need it.

Debt-free money.
Government-issue.

America the people take the lead.
The rest of the world will soon follow.

It's not socialism.
It's a private banking world, lending real money, a la Mssrs. Friedman, Simons and Fisher.
Greenbacks, plain and simple.

[Viper]

For all of you talking about not having car MFG or banks to big to fail and etc... In a world of global companies is if yours are not too big to fail, you will not be a leader in any industry... Do you think Toyota is not too big to fail... Japan does!!!!!!!

In the 1980s America decided not to be a MFG . In the late 1990s not to be in high tech, in the early 2000s not to be in much of the service/help line/ business...claims processing, online ordering and now we appear to be deciding not to be a major player in world finance....that leaves us with Agriculture, raw materials and McJobs... just like any 3rd world country.

Regards

[TEETAAT]

Chrysler, bailed out in '79.

Courtesy of Wiki:

"On September 7, 1979, The Chrysler Corporation petitioned the United States government for US$1.5 billion in loan guarantees to avoid bankruptcy. At the same time former Ford executive Lee Iacocca was brought in as CEO. He proved to be a capable public spokesman, appearing in advertisements to advise customers that "If you find a better car, buy it." He would also provide a rallying point for Japan-bashing and instilling pride in American products. His book Talking Straight was a response to Akio Morita's Made in Japan."

"The United States Congress reluctantly passed the "Chrysler Corporation Loan Guarantee Act of 1979" (Public Law 96-185) on December 20, 1979 (signed into law by President Jimmy Carter on January 7, 1980), prodded by Chrysler workers and dealers in every congressional district who feared the loss of their livelihoods. The military then bought thousands of Dodge pickup trucks which entered military service as the Commercial Utility Cargo Vehicle M-880 Series. With such help and a few innovative cars (such as the K-car platform), especially the invention of the minivan concept, Chrysler avoided bankruptcy and slowly recovered."

"In February 1982 Chrysler announced the sale of Chrysler Defense, its profitable defense subsidiary to General Dynamics for US$348.5 million. The sale was completed in March 1982 for the revised figure of US$336.1 million."

"By 1983, the loans were fully repaid..."

A little guv, a little free market.

[Viper]

Notice that Krugman never says how the nationalization reduces the cost of the bailout and that some how the money to make magical loans re appears other than by government putting in more money. After the bank nationalizes all that happens is you dont subject them to the insolvency tests which is why he wants to nationalize them. He forgets to factor in the cost of tax deduction taken when these loans are wrtten off by investors.

He mentions the FDIC stepping in and in a few days transfering the banks to new larger owners.... Bank consolidation w/o mentioning he is now talking about nationalizing the twp largest banks in the world which are unlike the other banks international .. there are no other banks larger in the world to take them over.


Does not say how this shortens a recovery unless of course he means they can loan more because we are not going to subject them to the solvency requirment we require banks to operate under.... well if some one else takes them overm, then they are subject to those requirements, so again they cant loan more money until more money is put into the system.

This is how BofA got into this mess.. they took over Merril at the request/orders of the Government.

What nationalization does do is make this the Obama and Dems banks that are laying off people and foreclosing which is political suicide.

Regards

[TEETAAT]

dominoes

[Viper]

Wonder how people will feel when these nationalized industries will have as their new owners China and Arab nations ... the only ones with enough money to buy them when re privitized...

The man cant think two steps ahead...

Regards

[TEETAAT]

When nationalization is no longer necessary, we wouldn't be selling out to China or some Arab nation. (although that makes me chuckle trying to see your vision of the future. I can almost read the want ad: For sale, formerly nationalized company, must be bought in whole by a foreign nation...)

We would be returning them to the free market in shares!

[yappnmutt]

paul has been behind the curve on this crisis since the beginning in 2007. anyone can put their finger in the air to gauge which way the wind blows.

[ProudLiberalDan]

Oh really? Let's see. What did you win your Nobel Prize for?

[flyers]

I email Paul Krugman everyday, but have to get a response from him as I ask, "So you pushed hard on the political shows for that 800 billion dollar bailout plan, want to admit that was a dud?"

I remember the night that the Bailout bill was being debated, Krugman was on Larry King saying 'THIS HAS TO BE PASSED' and in the process scaring the hell out of people that the economy will go bust if they don't pass it. Last time I checked, the dems, republican and Bush passed it, and the economy has gotten worse.

Lets listen to more of Paul Krugmans great ideas!

[TEETAAT]

The bailout is imperfect, not a dud. Banks would have fallen like dominoes without it. Things get worse before they get better.
I'm nterested in seeing the content of your emails to Krugman...

[AtheistUS]

You could leave just the very first part: "I email Paul Krugman everyday." That's enough.

[Viper]

If it had not been passed interest rate for homes would not have declined and we would have been under now... Its did make things better.. what it was suppose to do was prevent a total failing and that it has done...


Did it solve the problem.. NO... the problem is 30 years old and will take 30 years to solve... we must be making more of what we import here. PERIOD.

Regards

[TremoluxMan]

I ask again, why isn't Krugman part of the administration?

[ecotopian]

Maybe he doesn't want to be? Perhaps he'd rather stay on the outside and keep them on their toes.

[TEETAAT]

I'll bet it was offered. He worked for Reagan. He was interviewed by the Clinton administration.
He is among the finest economists of our time.
This brilliant and succinct appeal to reason garners just 47 comments...he makes so much sense he leaves the opposition speechless!

[yappnmutt]

he's a quack

[TEETAAT]

thoughtful comment!

[AtheistUS]

Following Clairvaux, I say Thank God for Krugman.

[larry278]

I wonder who God thanks for creating Paul Krugman ---or Rahm Emanuel.

[LyleJay57]

I read in article after article that the collapse of Lehman Brothers seems to have been the tipping point for much of this financial crisis. Great call, Henry Paulsen and whoever else kissed his arse on this decision!!

[LeonBNJ]

Perhaps too in a temporary nationalization of the worst big banks, the Government could do a lot of things that are badly needed. Make banks hold on to their own loans and mortgages, with strict limits on being able to sell them off in some collected form. Put in much more consumer friendly regulations like as to late fees and how credit card interest rates are set. End excessive compensation, strictly limit bonuses and incentive payments for all employees. I would also break up the biggest banks like Chase, BoA who along with Wells Fargo/Wachovia have over 33% of all bank deposits, each into 3, 5 or more regional new bank companies so could be parts of other banks, end their non-competitive dominance and end the 'too big to fail' situations that has caused them to end up become dead banks open.

[Anastasia]

All good ideas.

It would be interesting to now if Obama is keeping nationalization off the table because he thinks that it's politically untenable or whether members of his economic policy team area against it.

Nationalization, especially in the way Krugman lays it out, makes sense. Perhaps Obama is listening to the wrong people.

[TJCole]

Nationalize these major insolvent banks and run them and get the loans flowing, we can privatize again after the crisis lifts maybe 5 to 10 years from now but not sooner..or we'll end up right back here soon enough..!

[Viper]

So we got into this mess because they made getting loans too easy in good economic times and you want to nationalize them so they can make even riskier loans in bad economic times and dsiregard the solvency test, becuase thats the only way you can make more loans w/o putting more capital in and that will not cost us more money and you want it to be Obama handing out the pink slips.. to be the one forelcosing... denying the credit or giving out more credit which is how we got here...

The same idiots who said let them fail are now saying nationalize everything insight ... caused the government to let tiny Lehmans fail which pushed this whole thing over the cliff.

Nationalization is political suicide and yet no one says how it will reduce the cost of the bailout.

Does it reduce the foreclosures...no... the banks service the loans, dont own them fpor the most part... and the ones you nationalize might only own a peice of a mortgage...


Regards