Nationalize the Banks?

Great Debates
1

Time for this debate. Despite my life-long commitment to the conservative wing of the extreme left, I do not intend to argue from my own clear authority and expertise. Such as it were.

I am a frequent visitor to Washington Monthly at http://washingtonmonthly.com/…

and I am struck by a recurring theme he strikes of different small regional banks being overtaken by the FDIC, which he refers to with grim cheer as “Podunk National Savings and Moan gets EATED!!” Several times a week.

And we hear more and more about it every day. Just for instance, Sen. Dodd, chair of the Banking Committee…

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEvPzrV6pF88&refer=home

I suppose being a semi-rabid lefty, I am expected to greet this news with smug aplomb, but I am not at all sure, my experience with financial gyrations being rather limited. I fully expect that any graduate of the White Studies program of any accredited university to be better informed.

The main benefit I could see would be to clear out the confusion. How big of a shit sandwich do we have to eat? Will there be any mayo, or Miracle Whip? Seems to me that by now the banks must have some idea just how big the serving is to be, but seem reluctant to tell us clearly. My dark suspicion is that they are hoping that we will pay a value for them that grossly exceeds their “market value”, as would be determined by market forces or magic 8-ball.

Some Republicans appear to be sidling up to the idea, as well as some economic rock stars like Alan “WTF?” Greenspan.

I pose the question in perfect honesty, I don’t know enough to have an opinion worth defending. I have every intention to strictly avoid needless snark, however droll. (Please observe the big, brown innocent eyes. Bat, bat.)

But what little opinion I have inclines me to think this is a good idea: take the medicine in one gulp, and be done with it. Find out where the bottom is so that we can at least depend on some measure of certainty. But if we let the financial industry follow its path of enlightened self-interest, they will screw us cross-eyed. They won’t tell us how big the Big Shitpile is until we commit to making them whole. Its like lipstick on a pig-in-a-poke, but there may not even be any pig there.

Let me emphasize I do not currently support summary executions. But I am open to argument.

2

People involved in the debate should put one thing out of their minds: nationalizing the banks isn’t going to plunge the US into godless socialism. In fact, nationalizing the banks wouldn’t be an extraordinary move at all because banks aren’t like other businesses. They derive a tremendous advantage from the fact that the government insures and guarantees a certain level of deposits in their institutions, which promotes stability. In return for this benefit, and in recognition of the important role the banks serve in our economy, the government has the power to take them over if need be.

I don’t think anyone can honestly argue at this point that the banks will be fine if left to their own devices.

3

CNBC is in shock over that right now. Several economists are pushing nationalism. Volker just said Capitalism will continue to exist in some form. Greenspan now thinks it is needed.
Bankers are claiming their expertise tells them the banks will do fine if left alone. Where were they the last few years? What expertise is that? They can not be trusted.
Volker said unregulated banks operating on a global basis have broken down. They have to be restructured and re worked. What that will look like nobody knows. The stock market is plunging. Bankers are defending themselves saying they have figured it out. They are saying that buying up smaller solid banks have been a big success for bigger banks. But others say they are just spreading their poisonous assets to banks that were not so rash and greedy.Cramer is asking government officials to call them and assuage their fears.
It seems nationalizing is on the table.

4

http://www.talkingpointsmemo.com/

has an ongoing discussion of this story as it breaks.

(Warning: moderately lefty site, standard cautions apply…)

Too much is said and linked to lift out and plop here, but Joe Bob **'luc **says “Check it out!”

5

And this just in…

6

Yeah, but they always say things like that right before they take action the other direction.

7

The FDIC Failed Bank List is filling up fast this year:

http://www.fdic.gov/bank/individual/failed/banklist.html

8

A couple of quotes to add:

(From some commenter at Talking Points Memo)

And the following, from renowned Trotskyist and wild-eyed revolutionary, Paul Krugman…

(Emphasis in original)

Offered without comment.

9

I have little use for socialism, but even less for the current trned, which is a system that combines the worst features of both capitalism and socialism.

IF Citigroup and Bank of America can’t make it on their own, and need infinite bailouts to stay afloat, well, why NOT nationalize them?

Either have capitalism and let them die, OR have socialism, and let them be nationalized. But to keep throwing public money at private businesses makes no sense.

10

It cannot be socialism as long as its voluntary. If a bank fails, they can either really fail and disappear, or take a hand out from the government and be nationalized until they’re fiscally stable again. After that, they can be private once again.

So it is a choice. And yes, failure can be an option, regardless of what “positive thinking” says.

So it’s either fail, or we will help you but with conditions. No socialism there.

11

Is there a difference between the proposed “nationalization” and what we did during the S&L crisis? We took over and liquidated some fairly large institutions then, but is something radically different being proposed this time around? (this is a genuine question)

12

Compared to …?

According to the FDIC historic stats database, it’s not the number of banks failing that is the the problem but the dollar impact. As of today, only 13 banks have failed. Thirty banks failed last year. Yet both are a far cry compared to the 1980s when the years 1986-1992 were particularly bad:

[ul]
[li]1985 - 18 banks failed[/li][li]1986 - 204 banks failed[/li][li]1987 - 262 banks failed[/li][li]1988 - 470 banks failed[/li][li]1989 - 534 banks failed[/li][li]1990 - 382 banks failed[/li][li]1991 - 271 banks failed[/li][li]1992 - 181 banks failed[/li][li]1993 - 50 banks failed[/li][/ul]

The dollar value of these 2,354 failed banks is $755,582,309 in assets but only $105,260,091 in estimated losses. On the other hand, from 2007 through today the dollar value of 46 failed banks is $1,687,447,390 in assets but only a measly $119,539 in estimated losses.

Look at the actual numbers and not the hype.

13

14 as of today. Silver Falls Bank, of Silverton, OR folded friday.

I see 11 in 2002
4 in 2003
4 in 2004
0 in 2005
0 in 2006
3 in 2007
25 in 2008, as the recession started in on us.
We’re at over half the 2008 number, less than two months into the year.

The actual numbers, not whatever hype you may be referring to, show a decided uptick in bank failures. Please take notice of that fact. The purported dollar value of many bank isn’t everything it is supposed to be these days, so I’d rather count the rate at which discrete organizations go under.

14

What the OP argues for seems to be the same as what the government did during the S&L crisis. The problem today is that the government has been slow to come around to that idea. One of the original ideas floating around was to create a “bad bank” that would take all the toxic assets off the books of the banks and try to liquidate them at the most profitable time. However, nobody knows what these bad assets are worth, how much the government should pay for them, and whether there will be any market for them. It would essentially allow the shareholders of these banks to maintain their ownership and enjoy all the upside while the taxpayers get stuck paying for it.