Nationalize bailed out banks now - temporarily

[cmac2012]

February 2, 2009
Bailouts for Bunglers

By PAUL KRUGMAN

Question: what happens if you lose vast amounts of other people’s money? Answer: you get a big gift from the federal government — but the president says some very harsh things about you before forking over the cash.

Am I being unfair? I hope so. But right now that’s what seems to be happening.

Just to be clear, I’m not talking about the Obama administration’s plan to support jobs and output with a large, temporary rise in federal spending, which is very much the right thing to do. I’m talking, instead, about the administration’s plans for a banking system rescue — plans that are shaping up as a classic exercise in “lemon socialism”: taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right.

When I read recent remarks on financial policy by top Obama administration officials, I feel as if I’ve entered a time warp — as if it’s still 2005, Alan Greenspan is still the Maestro, and bankers are still heroes of capitalism.

“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” says Timothy Geithner, the Treasury secretary — as he prepares to put taxpayers on the hook for that system’s immense losses.

Meanwhile, a Washington Post report based on administration sources says that Mr. Geithner and Lawrence Summers, President Obama’s top economic adviser, “think governments make poor bank managers” — as opposed, presumably, to the private-sector geniuses who managed to lose more than a trillion dollars in the space of a few years.

And this prejudice in favor of private control, even when the government is putting up all the money, seems to be warping the administration’s response to the financial crisis.

Now, something must be done to shore up the financial system. The chaos after Lehman Brothers failed showed that letting major financial institutions collapse can be very bad for the economy’s health. And a number of major institutions are dangerously close to the edge.

So banks need more capital. In normal times, banks raise capital by selling stock to private investors, who receive a share in the bank’s ownership in return. You might think, then, that if banks currently can’t or won’t raise enough capital from private investors, the government should do what a private investor would: provide capital in return for partial ownership.

But bank stocks are worth so little these days — Citigroup and Bank of America have a combined market value of only $52 billion — that the ownership wouldn’t be partial: pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.

My response to this prospect is: so? If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found? But the Obama administration appears to be tying itself in knots to avoid this outcome.

If news reports are right, the bank rescue plan will contain two main elements: government purchases of some troubled bank assets and guarantees against losses on other assets. The guarantees would represent a big gift to bank stockholders; the purchases might not, if the price was fair — but prices would, The Financial Times reports, probably be based on “valuation models” rather than market prices, suggesting that the government would be making a big gift here, too.

And in return for what is likely to be a huge subsidy to stockholders, taxpayers will get, well, nothing.

Will there at least be limits on executive compensation, to prevent more of the rip-offs that have enraged the public? President Obama denounced Wall Street bonuses in his latest weekly address — but according to The Washington Post, “the administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid” because “harsh limits could discourage some firms from asking for aid.” This suggests that Mr. Obama’s tough talk is just for show.

Meanwhile, Wall Street’s culture of excess seems to have been barely dented by the crisis. “Say I’m a banker and I created $30 million. I should get a part of that,” one banker told The New York Times. And if you’re a banker and you destroyed $30 billion? Uncle Sam to the rescue!

There’s more at stake here than fairness, although that matters too. Saving the economy is going to be very expensive: that $800 billion stimulus plan is probably just a down payment, and rescuing the financial system, even if it’s done right, is going to cost hundreds of billions more. We can’t afford to squander money giving huge windfalls to banks and their executives, merely to preserve the illusion of private ownership.

[RichC]

I support ousting the federal reserve and socializing banking.

But I am sure lots of people here will argue that they want to give even more money to the fat cats of this country.

The banks and all of the other businesses that recieved bailouts have allready been socialized.
The question is do we let them go back to being private ?

Do we continue to provide corporate welfare ?
Privitizing profits while socializing losses ?

How many times do we need to repeat past failures before we try someting different ?

Capitolism just does not work as a comptete and total answer to the problems of running a country, there has to be a balance.

[LaRondo]

What we have in this country is not Capitalism.
Capitalism has started to disappear with the approval of the Federal Reserve Act.

Ever since, we have a growing system of Usury, which at this point, has driven most of the common population into debth or even worse, into financial disfunctionality.

Not too shabby, eh?

[RichC]

Usury

You bible thumpers should look that one up

----------------------------

If you explained to US citizens how the Federal Reserve,
and banking systems operate, most people would be outraged.

But the rich pupet masters have them in a trance.
The puppets keep dancing on the strings they tie to themselves.

[Botnst]

The world is out to get me so I better strike first!

[tankdriver]

Should've done it the first time around.
Maybe then taxpayer dollars wouldn'tve been going to bonuses, loans would've actually be made, and maybe even someone would've started looking at which companies are solvent and which aren't instead of giving money to all.
Fix it, then sell it back to the private sector. We might even make money.

[450slcguy]

No more financial bailouts. The banks abused the first 350 billion. Take the 2nd installment of those Tarp funds and put it towards the recovery plan.

[aklim]

Nationalize it? Who would manage it? The same people that can't even balance their checkbook with all the accounting tricks? Those people? Wow!! I feel safer already.

Maybe the doctors should simply sign all their prescriptions ahead of time and let someone like the druggies manage that warehouse. I'm sure it will be well looked after.

[JollyRoger]

Originally Posted by LaRondo

What we have in this country is not Capitalism.
Capitalism has started to disappear with the approval of the Federal Reserve Act.

Ever since, we have a growing system of Usury, which at this point, has driven most of the common population into debth or even worse, into financial disfunctionality.

Not too shabby, eh?

I hope you are not referring to your spelling, as I have bad news for you.

[JollyRoger]

The biggest argument for nationalization is that banks, under the usual pressures of capitalism, are simply unable to loan money out of fear of losing what little capital they actually have in their unicorn and little forest people leveraged world. They have done the calculations, and have found out that they, like little forest people, actually don't even really exist, and if they spend the few assets they have, they will be forced to open their eyes, or perhaps to click their ruby shoes together, finding out the cute cuddly lion is in fact a farm hand homosexual. It won't be pretty for them if they have to live in the real world. Better that the Wizard of Ob keeps handing them the cash while they dream of pink horses and flying monkeys.

Nationalized banks would not be under such pressure and would start simply loaning money, albeit this time your money, to the markets. This would actually be the simplest way out of this mess, but to an American world populated by the aging children of The Cold War (who constantly post away at places like this), the idea is loaded with Communistic danger. Che Guevera, who brilliantly forged Obama's birth certificate some years back, is actually still alive and poised to command the Federal Home Loan Bank Board. Castro has his eyes on the New York fed seat (which hopefully has one of those built-in potties). The idea this is actually a good idea, well, it will simply not enter the brains of your average Republican, who prefers unicorns and pink fairies, or well, at least Sen. Larry Craig does. It's a strange world out there.

[Botnst]

Let them die the slow, agonizing death they have earned. Fock'em.

[aklim]

Originally Posted by Botnst

Let them die the slow, agonizing death they have earned. Fock'em.

If the profits are private, why should the risks be public? Business is about growing or dying. If they cannot survive, let someone else more worthwhile come up to take their place.

[RichC]

Originally Posted by aklim

Nationalize it? Who would manage it? The same people that can't even balance their checkbook with all the accounting tricks? Those people? Wow!! I feel safer already.

Maybe the doctors should simply sign all their prescriptions ahead of time and let someone like the druggies manage that warehouse. I'm sure it will be well looked after.

We have at least two choices.
Nationalize the banks and let someone new manage them.

Or give it back to the people that keep screwing up, and screwing us in the process.

[aklim]

Originally Posted by RichC

We have at least two choices.
Nationalize the banks and let someone new manage them.

Or give it back to the people that keep screwing up, and screwing us in the process.

How about letting them fail and others who are not in trouble will take over? IIRC, Wells Fargo among others is not in trouble. Just because you have someone new doesn't mean it is bulletproof. Businesses fail now and then. When they are not careful, they should be allowed to fail. Just like people. Survival of the fittest. Those not fit to survive should be rolled over.

[RichC]

Originally Posted by aklim

How about letting them fail and others who are not in trouble will take over? IIRC, Wells Fargo among others is not in trouble. Just because you have someone new doesn't mean it is bulletproof. Businesses fail now and then. When they are not careful, they should be allowed to fail. Just like people. Survival of the fittest. Those not fit to survive should be rolled over.

Then we have to change all the deregulation of banking that has happened over the years so one bank does not get large enough to hurt our econnomy like they have.

In that case we are still nationalizing the banking reglatory commities and others.
So our tax dollars will still be spent managing banks.