by Frank James
Nouriel Roubini, the economist who warned of the financial collapse long before it happened, is making waves again, this time with an opinion piece he co-authored in the Washington Post in which he and fellow New York University economics professor Matthew Richardson argue that U.S. banks should be nationalized.
An excerpt:
The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.
As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.
The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages...
... Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.
This is really breath-taking, that even free-market economists are talking about the federal government taking over the nation's largest banks. I'm not sure which is more mind-bending, the thought of an African American in the White House or Citigroup becoming part of the Executive Branch. Bank of America would truly be living up to its name then.
What's even more astonishing is for a Republican from South Carolina, not Maine mind you, but the Palmetto State, a conservative like Sen. Lindsey Graham, to say that nationalization needs to be something to consider. And he wasn't alone. Rep. Peter King of New York also allowed for this possibility.
As Sam Stein reports in the Huffington Post:
In a gloomy segment about the financial sector on ABC'S This Week, two self-avowed fiscal conservatives said that the U.S. Government should at least consider nationalizing the country's banking system as a means of moving beyond the current lending crisis.
"This idea of nationalizing banks is not comfortable," said Sen. Lindsey Graham (R-SC). "But I think we've got so many toxic assets spread throughout the banking and financial community, throughout the world, that we're going to have to do something that no one ever envisioned a year ago, no one likes. To me, banking and housing are the root cause of this problem. I'm very much afraid any program to salvage the banks is going to require the government... I would not take off the idea of nationalizing the banks."
The remark prompted a bewildered smile of sorts from fellow panelist Maxine Waters (D-CA) who said, to no one in particular, "We have come a long way."
Stein goes on to say in his report that Democrats like Sen. Charles Schumer of New York and President Obama oppose nationalization.
Schumer is Sen. Big Banks so his resistance to nationalizing financial institutions is not surprising.
But Obama has actually seems to be keeping an open mind about it. In a Friday interview aboard Air Force One with the Chicago Tribune's Clarence Page and other columnists, Obama was asked about a Swedish-style nationalization.
Though he acknowledged there'd be difficulties with it, he didn't rule it out. Here's his exchage with one of the columnists:
Q Just to follow up, if I hear you correctly you are saying that you could reach a point where you have to go further in terms of the government. If what you're doing now doesn't work --
THE PRESIDENT: I think what you can say is I will not allow our financial system to collapse. And we are going to do whatever is required to get credit flowing again so that
companies and consumers can do their business and we can get this economy back on track.
That sounds like an I'll-do-whatever-it-takes-including-nationalization type of statement to me.
Comments
I don't know what the GOoPer's are crying about, it was their favorite President (George Bush) who started nationalizing the banks in the first place.
Posted by: Hulk Smash! | February 15, 2009 3:11 PM
The sentiment is understood, but "nationalizing" banks is a very bad idea in general. Even if one were inclined to favor nationalization, it would still be a bad idea in the absence of some way to write down or write off the debts the government would inherit from the banks. The other problem with nationalization is that it could effectively leave the federal government with title to an extremely large amount of residential real estate, but otherwise broke. It doesn’t take much imagination to understand the down side of that situation. I don’t see the job of real estate broker (or worse) as a proper role for government, and especially not the federal government.
Posted by: John W. | February 15, 2009 3:49 PM
Roubini is right again.
If the country doesn't want more credit collapse debacles in future, that is.
To the extent deposits are insured, obviously the banks can't be trusted to make prudent decisions as to granting credit, because they've been able to shift the risk onto remote parties via securitization. If US govt. is going to insure deposits (one of the lessons of the Depression) then the govt. must actually make those decisions (one of the lessons of hte current debacle).
I knew the collapse was imminent when they repealed Glass Steagall.
When Bush started delegating military functions to $100,000 per year soldier of fortune "contractors", you knew his govt. had lost all control or oversight of any activity it was supposed to be overseeing--
except perhaps hiring attorneys for the Justice Dept., where his White House obsessed about the right wing credentials of their hires, rather than their qualifications.
That, they did pay attention to.
Posted by: ornery | February 15, 2009 5:14 PM
The government has wasted 2 trillion or so already putting patches on the busted tire. Likely they'll keep doing this until forced to nationalize the banks.
Posted by: Bill Watkins | February 15, 2009 6:03 PM
Right. Take over their toxic assets and assume all of their debts. Maybe, but that sounds questionable.
Posted by: rupert | February 15, 2009 7:17 PM
We need to nationalize health care, too.
Posted by: Nobody | February 15, 2009 9:41 PM
So why not also nationalize the health insurance companies?
Posted by: Mike | February 15, 2009 10:32 PM
How about its not american!
You people need to pull your head of the sand and think.
You can not keep printing money backed by nothing and expect things to cost the same... Get a clue... its called inflation... You ready for ten dollar milk?
We need to let them fail and get back to a gold standard. If we are broke we are broke.
If you lent somone money and they could not pay you back in real money would you be able to keep going... NO
You can nationalize what ever... If you want national health care I have a suggestion... Move to the old USSR with the rest of the Soicalist... Even Putin said it dont work and you people want to try it...
No wonder this nation is going to crumble...
We need to stop taking legal action over every little thing and get back to make stuff our selfs.
Tell then we are going to become a third world country.
Posted by: Tyler | February 16, 2009 12:57 AM
How about its not american!
You people need to pull your head of the sand and think.
You can not keep printing money backed by nothing and expect things to cost the same... Get a clue... its called inflation... You ready for ten dollar milk?
We need to let them fail and get back to a gold standard. If we are broke we are broke.
If you lent somone money and they could not pay you back in real money would you be able to keep going... NO
You can nationalize what ever... If you want national health care I have a suggestion... Move to the old USSR with the rest of the Soicalist... Even Putin said it dont work and you people want to try it...
No wonder this nation is going to crumble...
We need to stop taking legal action over every little thing and get back to make stuff our selfs.
Tell then we are going to become a third world country.
Posted by: Tyler | February 16, 2009 12:57 AM
I told someone a few years ago that the Bush administration would leave this country broke by the time they left office, and they told me that was imposable, guess what? The big money people in this country have been trying for years to be the one and only ruling class, to turn this country into the haves and have-nots, to eliminate the middle class. Well it looks like if they didn’t succeed, they came real close. I don’t know if people understand that the top ten percent of this country controls ninety percent of the money now, and they’ll do anything they can to control all of it. This is the reason that each time a republican administration has been in power we’ve gone into a recession, and it took a democratic administration to pull us out of it.
Posted by: Rory M | February 16, 2009 3:25 AM
The idea of nationalization of the big Amercan banks would send a very wrong signal to not only America but throught the world. There are many countries of the world which would take it as the ultimate demise of democratic capitalism and the triumph of communism.Since the end of second world war we have seen that this democratic capitalism is the best form of social system and when at this time of globalization most of the countries are aligning themselves in line with the American type of social system then America also has the moral obligation to preserve its systems of free enterprise.The term toxic assets is not suitable as it creates unnecessary fears among the minds of general population. These are solid houses built with good quality materials but only the present owners are unable to make their monthly payments. So the idea of ring fencing of all the bad debts of all the banks is a good idea as it would quantify the total bad debts. Then American government may buy back all these bad debts by forming a bank. The entire money will be printed and it will not cause any inflation as the total amount of goods and services in the economy is still intact neglecting temporary capacity reduction but the matching money supply is not there. This printed money will release the amount locked in all bad debts and the banks would start functioning normally. When the home owners would start payment of their loans the money received could be freezed to contain if there is any inflation. Apart from that the prime rate of the fed may be raised to control inflation. Besides all the major economies of the world such as Japan, India , China and western europe would start buying up dollars in large quantities to keep the value of dollar artificially high as otherwise their dollar reserve would dwindle in value. So we must act now as already 3.6 millions Americans have lost their jobs while we are wasting precious time.
Posted by: Amitabha Mukhopadhyay | February 16, 2009 12:19 PM
This is the biggest swindle of the public by a small class of people in human history. Let the banks fail; take your money out and join a credit union. Even if the banks are "nationalized" they'll be controlled by the same group of people who control them now: the interlocking directorates of the power elite that the sociologist C. Wright Mills so eloquently described fifty years ago. At least credit unions are actually controlled by the people, not the bank-owned government.
Posted by: Matt | February 16, 2009 7:28 PM
In a gloomy segment about the financial sector on ABC'S This Week, two self-avowed fiscal conservatives said that the U.S. Government should at least consider nationalizing the country's banking system as a means of moving beyond the current lending crisis.
Posted by: Grants | February 17, 2009 12:20 PM
Derivatives!!! 50 Trillion Dollars!!!
How will this be accounted for in the world economy?
We are essentially bankrupt.
Posted by: ueienergy | February 18, 2009 11:55 AM
The term toxic assets is not suitable as it creates unnecessary fears among the minds of general population.
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Posted by: buy foreclosed homes | May 28, 2010 4:24 PM
Debt, debt & more debt... will this ever end! (no!)
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