The New York Times and Bank Nationalization
My friend and former colleague covering the Clinton White House, David Sanger, has a somewhat breathless piece in today's New York Times about banks and nationalization. As I suggested last week, I don't think nationalization is the best way to describe what's likely to happen.
I hasten to add that anyone who guesses what's going to happen with this economy and the government's response to it, is fooling themselves and this includes me. Like most observers I knew Fannie and Freddie were in trouble but, this time last year, even though I'd been a longtime Fannie critic, I didn't see them going into government conservatorship. But nevertheless I think "utilityization" is a better way of thinking about banks. They're likely to stay in private hands and even be publicly traded but they'll be out of the risky businesses--mortgage-backed securities, Alt A loans, etc--that brought us to this point and will become much more regulated just like providers of water and gas.
I hope, as we move forward, with repairing the finance industry that we come up with less loaded terms than nationalization. We're not Cuba and we're not going to be. There's going to be an American solution to this problem. We just need a label for it.
Josh
Matt
Eric
Brian
Wait, when you object to nationalization are you objecting to the name or the thing? I hope it's the former, because nationalization is exactly what needs to happen. It may be that in the long term we end up with a bunch of banks that operate like utilities, but in the short term, the only way to get the toxic assets off banks' books without shafting the taxpayer is to nationalize. Here's why.
January 26, 2009 3:01 PM | Reply | Permalink
The thing is that is the way it used to be. Banks were regulated by and large like utilities. Then the republicans got the deregulation thing going and look where we are today. A huge fiasco. The future is clearly murky concerning where the world of "high" finance is going to go; however, one thing is assured and that is heavy regulation to prevent the profit on paper bs from happening again.
January 26, 2009 3:03 PM | Reply | Permalink
Right, 'cause there's never been a liberal democracy that's ever nationalized anything, ever. Only in Cuba, baby.
January 26, 2009 3:27 PM | Reply | Permalink
Yes, because the American solution is always to call things by less unappealing yet misleading names, or, alternatively, it involves wailing and moaning that the obviously prudent alternative is something they might do in Cuba(!), so therefore anything else must be better, even throwing taxpayer money at banks hoping (not demanding - for that is what Nazis do) that, one day, management will use it to expand credit rather than expand their bonus pool.
Wow, if this is the level of discourse on the crisis in DC, I'm scared.
If this is the level of discourse on TPM, I'm going to cry.
January 26, 2009 4:02 PM | Reply | Permalink
It's not nationalization in the usual sense, because that involves a government taking over a viable enterprise and compensating the shareholders. This is salvage.
My fantasy is that the government gets out of the TARP business and simply makes some tender offers. "We'll buy your shares at close of market next week, or you can find your own way out of this." It would get shareholders and managers out of the way without this multibillion-dollar death-by-inches charade, and the government could start unwinding things properly.
One potential advantage to such a salvage operation is that if you own (a majority of) the counterparties to a lot of different deals you can make a bunch of obligations just go away.
January 26, 2009 4:13 PM | Reply | Permalink
"They're likely to stay in private hands and even be publicly traded but they'll be out of the risky businesses--mortgage-backed securities, Alt A loans, etc--that brought us to this point and will become much more regulated just like providers of water and gas."
Why is nationalization or turning them into "utilities" needed to solve those kinds of problems? Just limit what kinds of risks commercial banks can take. Easy.
January 26, 2009 6:10 PM | Reply | Permalink
There's a label for your offerings, Matthew: the conventional wisdom or altrnatively, the inside-the-beltway slant.
Believe it or not, a lot of people out here in the blogosphere do not buy that crap. They are well aware that the public has been getting screwed by the establishment and its enablers such as you. If you think that nationalization is a dirty word, you are behind the curve.
January 26, 2009 8:07 PM | Reply | Permalink