Supposedly the topic of bank nationalization is now on the table in Congressional circles.
At the end of last week, Senators Dodd and Schumer signalled that financial elite solidarity has broken; "nationalization" is no longer taboo. The consensus is dead (check with Barney Frank), crazy ideas abound, and long live what new policy approach? Here’s five sets of issues to guide your viewing this week as we slip and slide sideways into our future.
It's about time. Unfortunately, the only kind of 'nationalization' that Republicans would be willing to sign on to is a nationalization that spares all of the bad guys who got us into this mess the consequences they deserve, while putting all of the burden of this 'fix' on the backs of taxpayers.
Most of the nationalization schemes you will hear promoted by members of Congress [especially Republicans] will involve infusions of billions of taxpayer dollars into failed banks in the hope that everything will eventually 'get back to normal.' In other words, they want the American taxpayer to take on a tremendous burden in order to allow the criminals who destroyed the economy to continue to run the financial sector of the economy as they wish. If we hop on that nationalization bandwagon, it will be a moral abomination. And unnecessary.
There is another way to nationalize the banking sector of the economy that will (1) minimize the financial burden taken on by taxpayers, (2) enable the economy to recover much more quickly, in a way that will (3) allow the marketplace to impose a punishment on the guilty that they deserve. We can have financial recovery and a healthy banking system without being forced to reward those who were criminally negligant in their duties as citizens. They not only gambled on way-too-risky 'investments'; they did it with other people's money and they did it in a way that infected the entire world-wide financial system.
If Congress and the American taxpayer are going to get into the banking business, then there is no need for us to pump trillions into banks that are essentially bankrupt. The bankers want us to buy all of their 'toxic assets' for much more than they are worth (which is essentiall $0] so they can continue to stay in business. What Congress ought to do is create its own bank, a Taxpayers' Bank, infused with taxpayer funds, that would lend all of its money out to borrowers, directly stimulating the economy. Most of the taxpayer billions that have already been pumped into private banks have simply been hoarded in order to cover the cost of the bad assets on their balance sheets. We'd get much more of what we want for the dollar spent on the crisis.
A Taxpayers' Bank would be able to help home owners by offering to refinance homes on lending terms that private banks will not grant. Holders of risky mortgages, including banks, do not want to give them up because---on paper at least---those loans are the most profitable. The Taxpayers' Bank would not care about maximizing profits, but would be primarily concerned with providing home owners with some relief on fair terms.
This might hurt private banks, but so what? They made bad decisions that threatened to destroy the economy, so let the marketplace deal with them. When Congress sets up its bank, it could then require that the banks holding toxic assets simply write them off, which is what banks usually do when loans are non-performing for a period of time. The only thing that is going to fix the toxicity of the international banking system is if those toxic assets are simply sold on the marketplace for whatever price they can get. When the banks do this, they will go bankrupt; but it won't matter because the Taxpayers' Bank will be providing for the all of the Main Street economy's banking needs.
The ONLY time the government should step in to buy the stock of failing banks is after the value of that stock has crashed on Wall Street, allowing the Taxpayer to buy them up at firesale prices. After most of the banks have gone bankrupt, we will see what kind of private banking industry rises from the ashes. At that time, with all of the poison removed from the financial sector of the economy, between the surviving banks and the Taxpayers' Bank we would be able to return to economic normalcy with a fresh slate. That is when a decision could be made to re-privatize the Taxpayers' Bank, although I'm not sure why we'd even want to consider the option. Banking is too important an industry to trust to a bunch of crazed, profit-lusting, risk-taking gamblers, who use other people's money to pursure their own greedy ambitions.
Congress is being lobbied heavily by the criminals who ruined our economy to bail out the banking industry in a way that lets them get away with economic murder. Maybe, just maybe Congress now has time to contemplate doing the right thing and protect Main Street at the same time it lets the marketplace punish Wall Street villians.
(For those who claim that it would not be a good idea for the government to get into the banking business, understand that banking is not rocket science. When Congress forms its Taxpayers' Bank, it would not need to hire anyone who is currently working on Wall Street or in the banking sector to run it. Simply hire some professors from academia who teach future bankers how to do their jobs to make the major decisions and then hire loan officers, etc., from private sector banks. Private banks follow criteria when they make loans and a government bank would do the same thing. Not needed: professionals who clearly did not understand risk when they ruined the private banking industry.)
Unemployment: Eliminate It Forever