I’m a little gobsmacked by the latest Chris Bowers piece on the economic recovery efforts. He acknowledges that Obama today directly addressed and denied some of the conspiracy theories that have been peddled at OpenLeft, but then he goes on to say this:
However, President Obama assures the country that the decision to avoid temporary nationalization had nothing to do with either ideological opposition or with coddling Wall Street…
…If [lack of] nationalization isn’t about concern for the shareholders who caused this mess, then why is undermining confidence listed as one of the two main reasons to avoid nationalization? Apart from shareholders, it is extremely difficult for me to imagine whose confidence President Obama is referring to in this sentence.
Bowers is referring to this quote from Obama that explains the two main reasons why he didn’t move to temporarily nationalize the megabanks.
On the other hand, there have been some who don’t dispute that we need to shore up the banking system, but suggest that we have been too timid in how we go about it. They say that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure to do so is yet another example of Washington coddling Wall Street. So let me be clear – the reason we have not taken this step has nothing to do with any ideological or political judgment we’ve made about government involvement in banks, and it’s certainly not because of any concern we have for the management and shareholders whose actions have helped cause this mess.
Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence.
Bowers is hung up on a non-contradiction. Obama doesn’t care about protecting shareholders of Bank of America from being wiped out. But he is concerned about people’s general level of confidence in economic and financial institutions, and the market as a whole. People need confidence to invest, borrow, or lend. There is nothing inconsistent with being indifferent to shareholders’ interests in megabanks and being concerned about confidence in the investor class as a general matter.
Then Bowers makes a seemingly offhand comment that undermines just about everything he’s written on this topic.
In the end, temporary nationalization was likely avoided by the Obama administration because there wasn’t enough money available to pull it off, and the current political climate makes it impossible to get more.
If Bowers believes this, then a) why has he been so critical, and b) why has he fanned the flames to make the political climate even more hostile?
What have I said all along? I’ve said that there is no evidence that nationalization won’t be more expensive in the long run and that there is plenty of evidence that it will be staggeringly costly with no hope of recouping the losses. I’ve said that Obama is not doing this as some kind of dupe of Larry Summers but out of a cool assessment of the risks, benefits, and political constraints he faces. I’ve said that we have to restore the credit markets and market confidence, and that nationalization would be risky. I’m not shocked at all to hear Obama make essentially the same arguments.
I am a little surprised to see Bowers seemingly bemoaning the idea of boosting shareholder confidence. Everyone with a 401(k) or IRA in this country is a shareholder, and we all benefit when the stock market goes up. We may want huge shareholders in megabanks to get wiped out, but we don’t want our retirement plans wiped out right along with them. That’s why we need market confidence. That’s why it was always reckless to insist that Obama pursue a plan of punishing shareholders regardless of overall costs and without deference to political constraints. And peddling the idea that Obama was avoiding nationalization in some kind of scam to steal our money and give it to banksters was just kind of stupid.
