If you have been following the credit crisis, you may have been struck by a simple fact: We seem to be simply giving billions of dollars to banks, no questions asked.
Even with almost $250,000,000,000.00 given to the banks, the banks are not lending. The banks are lying about helping home owners restructure their mortgages. (Why is this on Good Morning America? I guess it takes crack GMA reporters rather than someone like CNBC or the Wall Street journal to uncover this? I am glad the news is getting out to the people, but we also need to get it to the Obama administration.)
It is long past the time for playing with bad incentives.
Nationalize the banks now
There are two major arguments for nationalization
- Most importantly - and nobody else is talking about this yet - we cannot tell what is part of the crisis and what was simply bad trades banks want to get off of their books. We cannot trust the banks to tell us accurately what they need in terms of taking bad assets off of their books
- We need to guard against moral hazard where shareholders take larger risks than they should due to somebody else paying the bills when bets go bad
I have a history of pointing out the future topics of conversation among our elites.
I can basically assure you in 2-3 weeks or a month, people will realize that due to the complexity of the banks balance sheets, their off balance sheet accounting, the size and number of assets to be valued, that there is no way to accurately tell what parts of the banks assets belong to which parts of the bank.
Therefore, taking all of the bad assets of the bank while leaving them the good ones results in a opportunity for the banks to engage in trillions of dollars worth of fraud.
And they will. Example: just recently the amount of estimated bad assets jumped from $1.5T to $4T
Why? What if someone said to you "I will give you as much money as you need"?
Because the word need is so open ended, it could mean just about anything. What do you really need? Can you live like a zen monk? Or maybe your needs are a little more extravagant?
Perhaps if you are a banking executive, you need a personal jet, to take you to important meetings where you decide which assets you want to keep and which assets you want to sell to the taxpayers at inflated prices for a few trillion extra cash money.
The only way to avoid this type of uncertainty is to nationalize the banks. Then, we can spend the time and resources necessary to figure out what belongs with which parts of the banks, and resell those assets as we can.