Former McCain Adviser Calls For Bank Nationalization

Via Matt Yglesias, it would seem that Douglas Holtz-Eakin, who advised John McCain on economic matters, has come out in favor of bank nationalization.

The right thing to do is to apply the principles of responsibility and competition, and the lessons of history to get this right. The most important lesson is that failed, insolvent banks cannot be permitted to continue to operate using taxpayers' subsidies. Letting these "zombies" walk the financial system was at the heart of the savings and loan crisis and the slow Japanese recovery from its financial crisis. These institutions should be taken over, their management and shareholders suffer the consequences of their failure, and the assets re-sold to private sector entities as fast as is feasible. That's good policy: discipline failure, promote real competition, and use assets effectively in the private sector. (Adam Posen is really smart on this topic. Read his testimony, here.)

Doing business that way eliminates "bailing out the banks" and "saving AIG" from the public discussion, and hopefully will make taxpayers more willing to open their wallets to solving the problem. Yes, it will be costly - but the cost is the price of not allowing the unwinding of individual institutions to cause a chain reaction of financial collapse. That is, the taxpayer money WILL flow through an AIG, for example, to those with which the failed institution has contracts. They may or may not be made whole, but they will not be stiffed entirely. The public will have to understand that this is the appropriate role for the federal government: preventing widespread collateral damage.

This sort of plan seems to have widespread support across the ideological spectrum of the deep thinky/op-ed set. Whether it does in Congress or not is another question. Of course, I still recall that Holtz-Eakin was the man who told reporters that the BlackBerry was a miracle John McCain helped create and who presumably did not disabuse McCain of his plan to exacerbate the economic downturn by freezing government spending, so it's tough to know if his support here speaks well or ill for bank nationalization.

[Would you like to follow me on Twitter? Because why not? Also, please send tips to [e-mail] -- learn more about our media monitoring project here.]

Comments

[AlaninElkGrove]

That McCain is clever like a fox (news)...

[AlaninElkGrove]

I believe Phil Gramm is also a former McCain advisor.

'nuff said...

[Cedman]

It is hillarious at how many republicans want President Obama to nationalize the banks. He is far to smart to fall for this BS. If you call someone a socialist before he nationalizes the banks, what will you call him in 2010 and 2012 if he takes your "advice"? They also call on him to let these huge banks fail. Why? Because if one f these big banks fail the economy will not recover for SEVERAL years and they will want his head. They want him to fail, and if seeing the economy really tank accomplishes the GOP's goal, so be it.

[6bd]

I wouldn't trust any advise he has to offer.

[HeevenSteven]

Oooooh, socialism!

[jsgaetano]

Obviously this guy, unlike McCain, doesn't believe "the fundamentals of the economy are sound".

After that line, I don't understand how anyone can take McCain, Graham, or anybody in the GOP seriously when discussing the economy. So much for accountability, or listening to people who even know what they are talking about.

[Sundialsvc4]

I do not believe that "nationalization" would be sufficient, because the underlying ... fraudulent ... obligations are still there, and still being honored. That is why all that public money is just "pouring right through" companies like AIG ... or Citibank, or BofA, or anyone-you-please.

We have to start by establishing that these arrangements are "a gigantic swindle." You'll never actually see objects floating in mid-air because the floating object next to them "guarantees" that it won't fall right out of the sky. Likewise, if you saw a beautiful blue ribbon marked "AAA" attached to such a thing, you'd know to dismiss it.

Under limited and controlled conditions, sure, ALL of these financial arrangements have their place and are "legitimate." But when removed from those conditions, they're not ... and when they have been removed from those conditions knowingly and with the intent to deceive, a crime has been committed.

I don't care if you're wearing a $10,000 suit. I don't care if you have a marvelous "explanation" as you pat me on the head and tell me how these things are "just too hard to understand." They are, in fact, quite easy to understand: a crime has been committed.

As long as we continue to "pour money at it," the fraudulent underlying arrangements will simply consume the money (and hedge-funds will cast lots for our clothing). Nothing will be accomplished in the public interest.

We need good laws here, and we need them yesterday.

[hopefulinpa]

Now it is okay to spend a lot of money when last week McCain was pushing to stop all government spending. Does he ever go back to Arizona and help his state?

[Salvadore69]

We don't need help like his, thank you very much. And he's the best of the bunch down here.

[realpolitic]

Those damn socialist Republicans!

[homer37]

When are the working class learn that this guy is a take off and mouth piece for Mc Cain and company. these repub have no idea what in going on in this counry. All they can do is no

[harriscrl3]

Does that make it the right thing to do. These folks were wrong before what makes you think they are right now? I dont know which is right but just because someone who was wrong before thinks that this is the right thing to do does not necessarily make me think its right.

One of the things that I heard Obama said on Jay Leno that I was impressed with is that the Federal reserve is making lines of credit available to small businesses and consumers so they dont have to go through banks. I sort of like that idea over nationalizing banks. I say let these banks fail rather than nationalizing them. But then again I'm not an expert

Carol

[Dystopic]

I want them nationalized, and then begin firing the entire executive team, and install some people with some common sense. Once the issues are cleared up in say 2-5 years, then release them to the free market once agan, this time with competent management and most all of the toxic assets off the books.

You do not have to be a banker to run a bank. The current management is/was/will be too focused on short term gains, and not the health of the company as a whole.

Otherwise we are going to be like Japan and constantly inject money into these banks, never getting a return on thst investment.

We cannot let the banks fail. if say BoA and Citi failed, the FDIC would be getting the bailout money rather than the banks.

I would prefer that BoA and Citi be broken up into several smaller entities, each focused on a separate market. We broke up Ma Bell in the 80's and it has spurred greater competition and a much richer set of features.

DIVEST NOW

[MESGAIN26]

CANT MAKE THIS STUFF ONLY THING NATIONALIZEING BANKS DO IS GIVE THE RICH PEOPLE AWAY TO SAVE THEIR MONEY THEY ARE LOSING WHAT NEEDS TO HAPPEN IS TO REVERSE THE FEDERAL RESERVE ACT CONGRESS GAVE POWER TO , WHITCH IS UNCONSTITIONAL , As long as the fed is not truly FEDERAL but a private group of bankers, they will act in their own private interest vs. the public interest. Having a private central bank to which we pay interest seems like a stupid idea to me in the first place. They have complete control over the money supply and seem to be able to act on their own rules, rather than according to any laws in place. Just because the President appoints the Chairperson unfortunately carries no particular authority or enforcement

[chocolatecity]

Well things didn't exactly work well when we had a Federal Central Bank instead of a private one. We had depressions all the time. We've actually done well with the Federal Reserve and FDR thought enough of the system to give them more authority and power in the 30's. Can you imagine how bad off we would be if Bush had control of our central bank? Many state owned Central banks in Europe are in bad shape right now and have needed loans from the Federal Reserve.

[Dystopic]

when u nationalize, the shareholder's value is wiped out. Even poor people have money in banks, it is not only the rich.

get over the fed reserve idea already.

[Jimmyboyo]

agreed

[ThankGodforAtheists]

I second that

[Dystopic]

your ignorance is blinding