I suspect the whole "public fear of nationalization" is just something cooked up by Bank of America's PR department to save BOFA shareholders the pittance they have left. In case it isn't, however--in case there are still folks out there who think "nationalization" means state-owned banks in perpetuity--Paul Krugman explains today why this isn't the case.
Nationalization does not mean "government-run banks." It means temporary seizure and restructuring. Customers are protected. Depositors are protected. Jobs are protected. The government puts the valuable parts of the bank back in private hands as soon as it can.
The FDIC is already "nationalizing" two banks a week: It grabs them, chops them up, and sells off their parts, solving the problem once and for all. And it's what we should do to Citi, BOFA, et al, now instead of later, so we can get started on the road to recovery:
Here's Krugman:
The case for nationalization rests on three observations.First, some major banks are dangerously close to the edge -- in fact, they would have failed already if investors didn't expect the government to rescue them if necessary.
Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can't risk letting much bigger institutions like Citigroup or Bank of America implode.
Third, while banks must be rescued, the U.S. government can't afford, fiscally or politically, to bestow huge gifts on bank shareholders.
Let's be concrete here. There's a reasonable chance -- not a certainty -- that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn't remotely large enough to cover those potential losses.
And then Krugman sums up the Obama administration's approach, which, sadly, is the same as the Bush administration's approach--most likely because the same general, Timothy Geithner, is hatching the plans.
The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.
Now the administration is talking about a "public-private partnership" to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.
Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis. (Krugman's full piece is here)
And how could this be done? By being honest about the results of the coming "stress test." Today's latest plan--the conversion of taxpayer preferred stock to common stock in Citigroup--would help Citigroup, but not the taxpayers. It's time to stop formulating half-measures and just bite the bullet and take Citigroup over.
See Also: The Hall of Shame (SLIDESHOW)
A wise man (Einstein) once said: insanity is doing the same thing over and over again and expecting a differfent result...........if that is the case, there are alot of insane people in this country right now........
Somewhat like Diogenes seeking truth or an honest person, I am still lookng for one person who voted for Obama who can and will name one thing he has done right on or since January 20. Few have tried; all have failed.
In capitalism and markets, nothing is guaranteed. And, failure is the result of making bad decisions. And those that don't make the mistakes will be able to flourish.
All this is doing is protecting "us" from failure. Failure is NECESSARY. All this nationalization/bailing out does is prevent the inevitable........and at a huge public cost. It will also extend this decline, and slow entrepreneurship and investment as job creators (people who like profit), are scared in the current geo-political climate given in no small part to what they see coming out of Washington.
That's CHANGE we can all see and believe in!
Anyone want to venture guesses as to who started the run? Anyone know who backed Obama with the big $$ hidden in his campaign funds not yet investigated by the federal authorities?
Are you suggesting we are now operating outside the law in a state of anarchy, chaos and lawlessness? I belive we are.
Neither should be in charge of either.
Shareholders of BofA are your bank, most pension funds and large stable insurance companies.
You would bankrupt them to prove an ideological point.
Krugman is brilliant, but he's expressing an opinion here, and he's wrong.
As I European I have far more experience of nationalization than many Americans. I certainly agree that governments make very poor executives of companies when run for tax payer profit as a long tern objective.
However to call the current proposals "nationalization" is, as Krugman says, a complete misuse of the term. We are talking about a government led bailout and in the current economic situation there is little choice in the matter. Incidentally I would trust Obama to be acting CEO of the banks far more than the people currently doing it - do you not agree?
The point is to temporarily place them under government control so that they can be protected and restructure. Once they and the world economic situation has recovered they will be placed back into private hands again. This is NOT nationalization in any sense of the word.
Since opinions seem to count so much here rather than those other stubborn things as evidence I offer these opinions with a smattering of the other where they appear needed:
1. Democrats love banks, want to control them, also vehicle manufacturing, healthcare, media (Fairness Doctrine), guns, marriage, discussion of racial issues (please see Eric Holder’s “nation of cowards” remarks), energy, oil and environmental policies (ANWR+offshore or other drilling), the climate, infrastructure and technology development and research, employment, all businesses, assistance to needy people, religion, the Internet, euthanasia, abortion, etc.
2. Republicans love government of, by and for the people, states’ rights; to meet the first order of any government (national defense); individual and private science and technology; people of all races, creeds, colors and national origins including in the womb and newborns, old people; entrepreneurs; our Declaration of Independence and Constitution – the guaranteed freedoms and rule of law, etc.
3. Krugman is brilliant only in the British sense of the word, and right as much as Obama has been before, on or since January 20. I don’t know if being right can be a negative number. If so that is the number that applies to Krugman and Obama, you too if your post is an example of your work.
If at any point in the above paragraph you asked yourself what about the millions of ordinary citizens who put their money in the banks, you got the point. If the thought didn't occur to you, you must be a Republican.
Are you under the impression that if the banks are nationalized that the CEOs will be paid salary put forth by congress. All the plush chairs and furniture will be replaces by folding chairs and the tables that go with them. Credit scores will go out the window and loans will be made only to the demographics of the democratic party regarless of their ability to repay. How will this affect the very rich democrats and trust fund babies. Oh, I understand, Hollywood will still be able to get loans.
Maybe the high profit margins will be gone and all money will be loaned at 1/4 point over the cost of treasury bills.
“Nationalization,” as expected, is an often-heard buzzword of the Obama administration and the Liberal Democrat-dominated Congress: nationalized healthcare, nationalized banks, “nationalized media” – California Attorney General Jerry Brown, last week. What else can we nationalize, preferably by legislative action or better yet referendum of the people?
Here is a partial list for consideration: gun control, marriage, sales taxes, mandatory discussion of racial issues (please see Eric Holder’s “nation of cowards” remarks), national photo and finger or thumb print ID cards, birth certificates, and all of these - police protection, fire departments and first responders, energy, oil and environmental policies, state and local parks, governments, infrastructure and technology development and research, employment, industries, small businesses, state National Guard units, assistance to needy people, religion, climate change initiatives, the Internet, euthanasia and abortion. Wait a minute – haven’t we already done the last one with Roe v. Wade and made significant “progress” on some if not all of the others?
Just think of the growth in Federal government we could have, cost savings or tremendous ballooning of costs, and settlement finally of an issue over which a War Between the States was fought from 1861-1865. And we might be able actually to see Obama’s birth certificate.
What will work is taking control of the banking system, not the banks. The U.S. government needs to regain control not of the banks, but of the system of banks, and needs to do it now. When has anything the Government run work??
The Federal Reserve should issue certificates of net worth to banks giving them as much capital as they need in return for notes from the banks promising to pay for the capital when times get better. The Fed has the ability to do this under its charter. Banks will then be able to finance on their own and use the certificates to insure that they are not wiped out by the gradual disposal of bad loans over time.
This system of forbearance was used successfully in 1989-1990 and can be used again. If there are institutions that cannot be considered solvent and are beyond redemption even after receiving the certificate (and given a chance over time to improve the situation), then they should be seized by the FDIC.
I cannot believe the number of comments calling for nationalization. Maybe it is because the democrats control both houses of congress and the Presidency. More than likely that will continue for awhile. But one day the republicans will be back taking one house at a time and the Presidency. Kinda like what goes around comes around. do not believe all these same people calling for nationalization will be happy when the republicans start putting their 2 cents worth in.
What we forget in this country are precedents. Once a new precedent has been set it gets easier to implement the same things again.
Excuse me, but isn't that the whole problem? Citigroup and BofA and the other big banks - aren't they insolvent? Isn't that what it means when you require a massive influx of capital to keep operating but don't have the credit or balance sheet "creds" to get a loan?
Let the FDIC do it's job; one it does very, very well. There is no need to debate "nationalization" or provide any more of the taxpayers money. There is a good working system in place; let it work.
One person is correct, it will do no good to take over a bloodless corpse left over by demented parasites, every entity (not only Corp's) involved in this blood-letting needs have assets both domestic and foreign frozen until justice is done and crimes paid for.
Banks, Financial Scheme Megoliths, Oil & Energy Industry, all are a good place to start nationalizing, give the blood sucker CEO's $40,000.00 per/year living expense for 18-months (similar to unemployeed), after that they find a job or go hungry.