I understand the extreme reluctance the Obama administration has about outright nationalizing the banks, and if they ultimately decide that they have no other choice I will understand it if they desperately try to avoid using the words: ‘nationalization of the banks.’ But, whatever you call it, I can’t see any other way to solve our financial crisis. We have banks that have debt obligations far in excess of their market value. It would far cheaper to buy these banks than to bail them out. And, who would buy them when they are worth billions less than nothing?
Our financial sector LOST ALL THE MONEY and then went and lost more. How do you recover from a situation like this? You can’t just let them all fail or we’ll have no one to loan money and everything will collapse. But you can’t rescue them either. It would cost more than our entire annual federal budget just to buy up their debt. The only solution is to have the government take an ownership stake in the banks, just as the banks repossess your property when you can’t pay your bills.
Creating a ‘Bad Bank’ won’t work because it will only accelerate the destruction of the value of the banks as they sell off their crappy debt at below true price. One way or the other, the shareholders are well and truly fucked, and we just need to come to terms with that and deal with it.
The interesting part is that it seems that George W. Bush killed capitalism. I think capitalism can be rebuilt, but not until we come to terms with the size of this failure. And, needless to say, the Republicans in this country are not going to want to accept reality or accept blame. Expect the next four years to be filled with right-wing ravings about the Europeanization of America. And, of course, all the blame for this will be placed on the people charged with cleaning up Bush’s mess.
After pouring tons of money into the English banks…I think they are now going to nationalize them.
And I think the bonuses should be clawed back, I think that’s what they call it.
One of the morning reaction diaries at dkos pointed out that Brown was talking about that possibility. The articles pointed to also mentioned rumblings from this side of the ocean about nationalizing too. We’ll see, eh?
I find it funny that months into this debacle and people still haven’t been told by our media just how HUGE the amount of money is that it would take to pay off all of these gambling debts.
Even the people that have a grasp on the problems don’t have an efin’ clue how to fix it.
Nationalize the banks, ride it out (and it will hurt!) and prosecute to the nth anyone that engaged in criminal or criminally negligent business practices.
WTF else can we do?
BTW: that blog post was from October. But the problem is still there out there and most Americans still don’t even understand the real problem.
Media = Epic Fail… Yet again.
With the M2 money supply at some $7 trillion, covering these derivatives would cause about 1000% inflation unless the velocity of money slowed to a crawl which would be even worse. Using M3 would result in a lower figure, but the Fed doesn’t publish M3 any more and I don’t have a subscription to Shadow Statistics.
Continuing TARP into derivatives would result in a severely depressed hyper-inflated economy in which a few dozen hyper-rich own everything. In other words, Republican Heaven.
Well, something needs to be done because the economy is not going to pull together until credit loosens and banks start lending again. And so far nothing that has been done has created that effect.
I’ve been wondering how having some percentage of the banking system nationalized would affect the percentage of the system that isn’t nationalized.
I know people call this the Swedish model, but when they nationalized Sweden’s banks – how many banks were there and did they nationalize them all? And if not, what was the effect on the non-nationalized banks? Did it make them more or less likely to lend or was the effect neutral? And how does that translate to our financial system – we have a lot of banks. And most of them aren’t lending right now. Will stabilizing the big banks stabilize the rest of the system? Or will the system tighten up more because they will be afraid of nationalization? I have no idea.
Having the shareholders take the hit doesn’t bother me – that’s the risk of investing in equity. But predicting the effect on the overall financial system is a concern.
Capitalism works about as well in practice as communism, by which I mean that a pure capitalist system is as doomed to failure as pure communism. What actually works is something in between for which we do not yet have a good name. Market-driven socialism?
The fundamental flaw in capitalism is that wealth is a competitive advantage. Even assuming everyone is behaving honestly and fairly — something that almost never happens with large sums of money — the end result of an unregulated market is a bunch of monopolies or, at best, cartels composed of a relatively few giant companies that have essentially agreed to avoid stepping on each others’ toes.
Competition works, no doubt about it. But it is not a perpetual motion machine. We need a government that actively manages competition, always seeking to maximize it, because only under a regime of maximum competition is maximum value delivered to the consumer (and worker). Breaking up companies above a certain size should not be a rarity, it should be commonplace, preferably with some kind of payoff bonus for shareholders so that publicly-held corporations are not discouraged from reaching that point.
Above all, we should avoid any situation where a company is “too big to fail”. All companies should be small enough to fail, if for no other reason than that all companies eventually do fail.
I am not, of course, holding my breath for our current system to produce a change that radical, but I do believe that, if this country is to continue to thrive and flourish, a solution like “managed capitalism” is what it will take.
When I was in High School, it was called the Mixed Economy.
Thanks, that’s a good name — it reflects the reality of it well without sounding sinister to people who are irrationally afraid of socialism.
“…all the blame for this will be placed on the people charged with cleaning up Bush’s mess.”
Not if Obama’s people use some message discipline ASAP and make it clear who and what are to blame for the meltdown. His administration now controls the microphone, the megaphone and the catapult. USE THEM. Beat Bushco senseless — it won’t take much since they’re already halfway there.
Kick their asses with rational, grown up behavior and responsible government.
“Not if Obama’s people use some message discipline ASAP and make it clear who and what are to blame for the meltdown.”
For the same reason that Obama will never prosecute Bush/Cheney’s crimes, he won’t go after Bush/Cheney on the economy.
That reason is that the Dems were complicit in the meltdown. They failed to provide oversight. Clinton signed into law the Gramm-Leach-Bliley Act in 1999 that erased the boundaries between banks, insurance companies, and investment houses.
In nine years that law has destroyed our economy. It has helped to create the derivative Armageddon that is coming.
The global economy is insolvent. It operates on a system of glorified IOUs that represent phantom assets an order of magnitude larger than the entire yearly global GDP.
It only gets worse from here. The value of those IOUs collapse further every day. With it will go the global economy.
“The global economy is insolvent.”
Bingo. Talking to people, I get the impression that this is still new news. People I know with businesses that rely on imported goods are now unemployed because the people they do business with cannot get an LOC to allow the shipping of those goods.
And yet, there are many people who do not understand how problems like these play out for the low-level folks, thinking that they will somehow punish the Wall Street folks alone by letting the financial system collapse. Or that companies rely on credit for capital to invest to be able to do business, and needing credit to buy the materials for the next big job isn’t necessarily a sign of poor business acumen.
We have huge problems ahead.
It is often said that FDR saved the financial system, but he didn’t. He replaced it with something better. We are at epic fail, where the debt of the existing system cannot be repaid, and therefore we will have no choice but to let that debt lapse. The resulting deleveraging will cause massive deflation, which presents an opportunity; the government can monetize debt with the resulting inflation already counteracted.
Obama and the progressive movement will get nowhere until we stop thinking about how to save the financial system – which is not possible – and start thinking about what we want to turn it into. Obama’s “extreme reluctance to nationalize the banks” is ideological, not pragmatic. The pragmatic arguments clearly say nationalize, in which case, why the reluctance, and why the reluctance to state honestly what you’re doing when it comes to it? Admittedly, there is an “increased power of the state” issue, that needs to be countered with very strong privacy and other autonomy laws, so we’d better focus on those instead of resisting nationalization. We also better stop thinking “how do we fix this?” and start thinking “how do we design something better?” It is not simple hope that requires audacity, it is big ideas and the courage for dramatic change.
“Our financial sector LOST ALL THE MONEY and then went and lost more. How do you recover from a situation like this?”
Not just lost more, but lost more given by congress on behalf of the taxpayer.
“You can’t just let them all fail or we’ll have no one to loan money and everything will collapse. But you can’t rescue them either. It would cost more than our entire annual federal budget just to buy up their debt. The only solution is to have the government take an ownership stake in the banks, just as the banks repossess your property when you can’t pay your bills.”
See, i thought the answer was to give them more money, no strings attached, because then the banks would.. well something or another.
Look at it like this, brendan.
We woke up one day in September in the heat of a campaign and discovered that they LOST ALL THE MONEY. Everything was coming down, or about to come down, in one giant implosion. The entire global edifice of high finance had screwed the pooch and no one was minding the store to fix it.
The first bailout was a simple effort to jury-rig a few support beams to keep the tottering edifice upright for a few months. The second bailout is but a drop in the bucket of what is needed. But before we can fix this we need to do two things. First, we have to talk to all the other industrialized nations about reforms, and second, we have to develop a legislative and regulatory program to deal with this.
So far, it’s working, but it is only staving off complete collapse at the moment. That is the real context of the bailout. It’s obscenely wasteful, no doubt, but it was critical.
You forgot the really serious part. Unlike past banking crises, this one occurs when the financial systems of the developed countries are tightly integrated. What happens to US banks affects UK banks, which affect Iceland’s banks, which bounds back to UK banks, which affects US banks ….
The key thing that has to happen is to stop the spiraling downward. Deposit insurance has meant an absence of photogenic runs on banks.
What is needed might be a global interbank transfer holiday, just to get the books in order. There has been too much scrambling for cover to keep up with valuations. It is time to call for a timeout.
Nationalization works only when the effects can be isolated to one country. For nationalization to work now, all of the G-20 countries would have to nationalize along the same lines.
The policy problem is finding the reset button on the money machine.
And that might be the key for two reasons. One, I suspect that America is the key to any global effort, so we have to come on board before others will bite the bullet. And, second, because of this, we may not have the option of maintaining our special commitment to anti-nationalization dogma.
I liked the line in the article where the guy said, “Nationalization isn’t in our vocabulary. That is what other nations do us, not what we do to ourselves.”
I agree some sort of “nationalization” is in order, but we haven’t arrived at a common definition of the word. Some people think it means taking control of all banks regardless of whether they are currently insolvent. Others (such as me) think it means nationalizing whatever blows up when some kind of realistic valuation of existing assets is applied. Either would be better than the TARP or some TARP-like aggregator bank, which for obvious reasons the financial industry favors.
Further reading: the FT has a linkfest of yet more opinions, and a good interview of Chris Whalen can be found here.
Summers looked like someone grabbed him between the legs when David Gregory said the banks should be nationalized since we (the people) are funding them now.
Is there anyone on this blog who can talk about abolishing the federal reserve…pro and con?
Every public statement and discussion by Damocrats must be prefaced by a brief explanation of how the Republicans brought on this disaster and how the Democrats are workng to save capitalism. If they bring up Bill Clinton, the fact is Clinton was DLC, aka “Republican Lite.”
Repossessing the banks. It’s the only way to describe what’s going to have to happen while avoiding the term Nationalizing.
And it perfectly describes what is happening in a way that the average citizen not only would understand but would wholeheartedly support.
Fuck yeah, repossess the banks from the fucking bastards!
How about a cleaner solution? Allow the banks that can’t make it to go through bankruptcy and restructure. Let the shareholders take their losses. They took their gains in the good times. At the same time, create a national bank so that credit doesn’t dry up. Hell, North Dakota has a state bank. Why can’t we all have a national bank. Instead of the taxpayers being on the hook for a lot of toxic assets that – in Atrios’s words – are a huge shitpile, why not have taxpayer money being lent out to businesses and people who need the cash for legitimate economic projects? And why not have a national bank lending the money? I can dream, can’t I?
It is the job of thinking people not to be on the side of the executioners — Albert Camus
While that might be clean on the scale of one bank, the fact is that banks are shareholders of other banks through a variety of mechanisms. And other corporations are shareholders. And 401(k) plans are shareholders. The fallout from that approach would ripple throughout the economy and cause other institutions to go belly up.
As for a national bank, that works only if the taxpayers buy the assets (like loans) for more than the current market value in hopes that a good number of them turn out over the long term to be better quality than they look right now. The taxpayer is still taking the risk. It worked for Sweden ten years ago, but can it still work in a highly integrated global financial market?
What the stimulus plan does among other things is set up facilities for states and localities to borrow funds for operating at more favorable terms than they can find in the market. For example, $79 billion is set aside for an “Educational Stabilization Revolving Fund”.
It’s not easy to find where the Reset button is.
I’m not talking about taxpayers buying bad loans from banks as part of a national bank strategy. I’m talking about a national bank starting out from scratch. Why should we buy the bad loans. That’s the problem with all the current proposals. Banks can still operate while they are in bankruptcy and restructuring, and a great many of them may survive and prosper and their investors will prosper along with them. I understand that this would cause a hell of a problem for all those who have investments in those banks that don’t survive, including 401ks etc., but it’s also a hell of a problem for taxpayers to pay trillions and trillions of dollars for worthless crap. Those trillions could be used to build schools, train teachers, fund public transportation, and the list goes on. Also, maybe as a way of mitigating the 401k problem the government could guarantee retirement funds invested in failed banks and only retirement funds.
Forgot one thing. Businesses are already going belly up right and left, so I don’t think the argument for having taxpayers bail out banks in order to keep businesses from going belly up has much traction.