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Obama: Nationalization Would Be More Expensive Than Our Plan
In a speech earlier today, President Barack Obama laid out a new rationale for his administration's opposition to nationalizing the country's major banks. Watch:
So let me be clear. The reason we have not taken this step has nothing to do with any ideological or political judgment we made about government involvement in banks. It's certainly not because of any concern we have for the management and shareholders whose actions helped to cause this mess. Rather it's because we believe that pre-emptive government takeovers are likely to end up costing taxpayers even more in the end and because it's more likely to undermine than to create confidence.Governments should practice the same principle as doctors: First, do no harm.
Back in February, Obama offered an arguably different rationale. He told ABC News' Terry Moran that there were two problems with the so-called Swedish model. First, that "Sweden had like five banks," while "we've got thousands," and second that "Sweden has a different set of cultures in terms of how the government relates to markets and America's different."
"[W]e want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country," Obama said.
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Josh
Matt
Eric
Take that, Krugman! (and his slobbering sycophants.)
April 14, 2009 2:03 PM | Reply | Permalink
You mean like Stiglitz, Roubini, Baker, and all the other economists who saw the crisis coming--are they Krugman sycophants?
Safe to say these people won't be impressed by this Obama claim since they support nationalization precisely because they believe it minimizes risk to taxpayers.
April 14, 2009 2:25 PM | Reply | Permalink
Who cares? The folks you named have opinions and opinions are just like assholes--everybody's got one! There are an equal number of respected economists who think this administration is on the right track.
I don't know what will work. But neither do Krugman and Stiglitz. Obama might very well be wrong. Everybody is guessing, including the president. People like you to constantly talk as if Krugman has some crystal ball are just plain silly.
Krugman has been warning about a pending economic crash for 15 years! That doesn't make him prescient. Sooner or later he was bound to be right. It's like a fortune teller telling me I'm going to die and saying "I told you so" when I croak 20 years later!
April 14, 2009 2:46 PM | Reply | Permalink
Your comment reveals a real degree of ignorance, crudity and anti-intellectualism.
Not all opinions are equal. In your world, Obama's opinion is the truth, even if he changes his mind.
I read your comment and see the results of defunding education over the last generation. A mind IS a terribel thing to waste.
April 14, 2009 3:05 PM | Reply | Permalink
>>A mind IS a terribel thing to waste. >>
You'd have a lot more credibility saying that if you could spell the word "terrible." LOL!
Pssst: I never said Obama's opinion was right. (Reading is fundamental.)
April 14, 2009 3:10 PM | Reply | Permalink
Ooooh, spelling snark! As usual, that's about all FreepRuder's got.
April 14, 2009 8:57 PM | Reply | Permalink
There are an equal number of respected economists who think this administration is on the right track.
Notice that FreepRuder doesn't, like, y'know, name any of them.
April 14, 2009 9:00 PM | Reply | Permalink
They may have seen it coming, but they did damn little to stop it. Or more importantly, prevent it.
April 14, 2009 8:01 PM | Reply | Permalink
It ain't necessarily so.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aLo7f1AKca.o&refer=news
“The bottom line is if the unemployment rate peaks at 10 percent these banks can make it through,” FBR’s Miller said. “But if it peaks closer to 12 percent, nobody makes it. Or very few people make it.”
In other words, the real world has already caught up to Geithner's supposed "worst case scenario". If things get worse still, as is very likely, the bandaid approach will fail catastrophically and we'll have to liquidate many large banks anyway- AFTER having first lit all the TARP money on fire. That is NOT a less expansive outcome, quite the contrary.
For the record, I don't think anybody at Bloomberg News is "a slobbering sycophant of Krugman." You however are, as always, a slobbering cretin. Actually, that's an insult to slobbering cretins.
April 14, 2009 2:26 PM | Reply | Permalink
Why must you insist on posting to me, only to piss yourself and run away like a little girl when I challenge on your unsubstantiated bullshit?
B-O-R-I-N-G . . .
April 14, 2009 2:40 PM | Reply | Permalink
You flatter yourself far too much. You're far too ignorant to make even a beginning of disputing anything at all.
April 14, 2009 2:46 PM | Reply | Permalink
Oh, is that why you spend so much time posting to me and trying to explain your motivations and beliefs to me? LOL!
April 14, 2009 2:49 PM | Reply | Permalink
Again, you're a legend in your own mind. Hey, whatever makes your pathetic life more bearable.
April 14, 2009 2:51 PM | Reply | Permalink
Don't make me pull up all the posts where you pleadingly tell me what makes you tick and your philosophy on life.
Why you thought I gave a shit remains a mystery.
April 14, 2009 2:55 PM | Reply | Permalink
Hey Steve, FreepRuder single-handedly got Obama elected. Give him a little credit.
April 14, 2009 9:02 PM | Reply | Permalink
And having done so, FreepRuder's new job is to defend Obama, all his appointees and every single one of his policies, from the evils of Paul Krugman (and his slobbering sycophants), or any other form of criticism whatsoever. Think of it as a kind of job security -- hard to find in this economy.
April 14, 2009 9:04 PM | Reply | Permalink
Sexist comment. "a little girl?"
I don't like sexism. Neither does President Obama.
Macho blogger? Strange.
April 14, 2009 3:07 PM | Reply | Permalink
How do you know what Obama likes? Chatted with him lately?
April 14, 2009 3:11 PM | Reply | Permalink
Uh, "unsubstantiated bullshit"? Steve posts, y'know, a link and a quote from Bloomberg News (and downthread, from the Financial Times). That's what we call "substantiation". FreepRuder, meanwhile, posts the noises in his own head about "equal numbers of respected economists" and how "everyone's got an opinion" -- which means they're all equal without examining, y'know, the facts and reasoning behind them. Oh, except for Obama's opinions. Those are THE TRUTH. Even if, as Tom Wells pointed out upthread, they, shall we say, change a bit from one month to the next, as noted in the OP.
April 14, 2009 9:10 PM | Reply | Permalink
Well said. On many levels.
April 14, 2009 3:06 PM | Reply | Permalink
It is interesting to see uncrritical support for Obama and demonization of all the progressive economists by commenters like you.
Obama presented a position. Many disagree.
Your comment is inane.
April 14, 2009 3:03 PM | Reply | Permalink
It's intersting to see the demonization of Obama's economic plans and his economic team by people who don't know beans about economics simply because people like Krugman tell you they're wrong and/or corrupt.
I don't know if Obama's plan will work. But it's the only one we've got. He's not going to change course in the mid-stream. So this constant attempt to undermine him every step of the way by Krugman and others is only hurting.
April 14, 2009 3:08 PM | Reply | Permalink
Obama's claim would be more believable if Geithner hadn't loudly declared his ideological opposition to nationalizing.
From the NY Times in January:
“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,” he said.
http://www.nytimes.com/2009/01/29/business/economy/29bailout.html?_r=2&hp
More important, most if not all of the economists who saw the crisis coming say that Obama's plan exposes taxpayers to enormous and unnecessary risk and that nationalization is the way to go.
April 14, 2009 2:22 PM | Reply | Permalink
Saying you'd like to do your best to preserve the private banking system is not the same as saying you're ideologically opposed to nationalization.
Don't go all "Hannity" on us.
April 14, 2009 2:48 PM | Reply | Permalink
The fact that Obama felt a need to respond to the left is important, even if the policy does not change.
April 14, 2009 3:08 PM | Reply | Permalink
Who does this Obama guy think he is? KRUGMAN HAS SPOKEN.
April 14, 2009 2:27 PM | Reply | Permalink
It's amusing that Obama fans think Krugman is given inordinate deference. That, I believe, is what's known as irony.
April 14, 2009 2:31 PM | Reply | Permalink
I don't like your tone. What do you mean by "inordinate deference" to Krugman? Krugman cannot be given "inordinate" deference, because he is right. How can you give inordinate deference to the Truth?
It is people like you-- who pretend reality is a matter of opinion and that our nation's leading economists may be questioned-- who are killing America.
April 14, 2009 2:44 PM | Reply | Permalink
Here's a free clue: sarcasm is a weapon that can only be wielded successfully, and without collateral damage to the wielder, by people who are at least marginally clever.
April 14, 2009 2:49 PM | Reply | Permalink
Wrong. We think he is given an inordinate amount of attention, not deference. He gets no deference from this administration which only makes him more unrelenting in his whiny rants.
April 14, 2009 2:53 PM | Reply | Permalink
Amusing. You hate Krugman because he criticized a few policies of Obama, yet President Obama respects Paul Krugman.
April 14, 2009 3:10 PM | Reply | Permalink
Just goes to show you I have my own mind, doesn't it?
While you wait for Krugman to tell you which panties to put on each morning, I don't need Obama's permission to dislike that little hunched over troll.
April 14, 2009 3:14 PM | Reply | Permalink
This comment, among others, might have a tad more credibility if it wasn't coming from a slobbering Obama sycophant.
April 15, 2009 11:54 PM | Reply | Permalink
Maybe you'll get some attention after your impressive body of work in the field of blog commenting is recognized by the Nobel committee.
April 14, 2009 7:33 PM | Reply | Permalink
Another point is the dubious truth of the assertion that the major problem is getting credit flowing. Actually, both consumers and business are in trouble in considerable part because they already have too much debt. What is really needed is to further stimulate demand. The TARP money would better have been spent on a stimulus package of truly adequate size.
Yet another point is that Obama is deliberately obfuscating the difference between the cost of bailing out depositors and the cost of bailing out depositors plus the investors in bank stocks and bonds, thus saving him from having to make the (economically very dubious) case for bailing out the latter.
Finally, very few people commenting about the crisis seem to grasp the distinction between the (obvious) point that the economy needs intermediaries (i.e. banks), and the far less obvious claim that we can't get along without the particular intermediaries we have now.
April 14, 2009 2:45 PM | Reply | Permalink
>>Another point is the dubious truth of the assertion that the major problem is getting credit flowing. Actually, both consumers and business are in trouble in considerable part because they already have too much debt. >>
That comment is too stupid to ignore!
Dude, in economics there is a HUGE difference between debt and credit! Debt = bad. Credit = good. Even burgeoning businesses with healthy bottom lines need credit.
When businesses can't access their lines of credit to meet payroll and order supplies or stock inventory, it brings production and the economy to a halt. That is a BAD thing.
When people with 760 FICO scores and steady employment can't get credit to buy a home or refinance their homes at lower interest rates, that is a BAD thing.
Even shifty-eyed Krugman would tell you that. Geez.
April 14, 2009 3:03 PM | Reply | Permalink
Just for starters, that is a complete myth; people that creditworthy are NOT having trouble refinancing, and I personally know a couple of them. As for other consumer loans, I had no trouble getting a car loan recently, at a very attractive interest rate (5.35%)with only $1000 down on a $17,000, 60 month loan. (My credit score was 730,a bit below the "solid gold" range.)
You have no idea what you're babbling about. Furthermore, we all know that you'd be bashing opponents of WHATEVER policy Obama had adopted, and Krugman would be your God if he were in the Obama administration. You're not fooling anybody; this is not about policy, of which your grasp is nonexistent. It'a merely about conformism.
April 14, 2009 3:09 PM | Reply | Permalink
You're correct. This free rider is not very intelligent.
Are you sure he really supports President Obama and the Democratic Party? Maybe a double agent, because stupidity does not pursuade.
April 14, 2009 3:11 PM | Reply | Permalink
Also, many business that are having trouble with short-term credit SHOULD be having trouble; they're not credit-worthy under current conditions. And again, to whatever extent that businesses who genuinely should be getting short-term credit can't, the government could far more effectively be providing it either directly, or by way of creating new banks, instead of throwing money down Vikram Pandit's rathole.
April 14, 2009 3:14 PM | Reply | Permalink
Hey, I just busted you on the difference between credit and debt. You (obviously chagrined by your own ignorance) change the subject to argue that credit is not frozen.
Credit has loosened up a bit in the past month but it was nearly frozen earlier in the year. Back in Feburary, banks were NOT loaning. That is what the president was talking about.
April 14, 2009 3:20 PM | Reply | Permalink
Great, since things have improved since February then Obama should tell Geithner he can't ask for more TARP money.
I'm afraid you can't have it both ways.
The relationship between credit and debt in this context is exactly what I said: both business and consumers in aggregate already have too much debt, thus no prudent bank SHOULD be extending more credit to many of them. And they won't, no matter how much bailout money they're given. Direct provision of demand by the government is what's needed, and the amount currently in play is insufficient even according to many conservative economists.
April 14, 2009 3:29 PM | Reply | Permalink
Credit is beginning to thaw. That's not good enough to back off, junior. We won't recover if only people with 750 FICO scores can buy a car. Banks are borrowing money from the Fed at less than 1% and loaning it to small businesses at 13%.
You're a moron if you think the only people having trouble getting credit are those who are not credit worthy. A woman in CT was 3 days late on one credit card after 18 years. They slashed her credit limit in half and added 15% to her interest rate. That's how credit-worthy people are being squeezed so the banks can make money.
Admit it: you don't know the difference between credit and debt. No problem. This is one time I was happy to help out the dimwitted.
April 14, 2009 3:49 PM | Reply | Permalink
Shorter freeper: Babble babble whine whine somebody please look at me!
Yawn.
April 14, 2009 3:55 PM | Reply | Permalink
>>somebody please look at me!
And you always do. Next, you'll be putting my pig tails in the ink well. Crush??
{Heavy sigh} Being the object of affection for the knuckle-scraping class. It's the cross I must bear.
Get back to me when you figure out the difference between credit and debt. LOL.
April 14, 2009 4:00 PM | Reply | Permalink
Also, the credit card rate / fee thievery has nothing to do with ability of the creditworthy to get business and consumer loans, which again, are quite available as I know from personal experience. (Nor does it have anything to do with the definitions of credit and debt.) You just don't know what you're talking about. It's an attempt by the banks to shore up their balance sheets after blowing their wad on bad investments (again pointing out that many of the existing banks are part of the problem, not part of the solution.)
But feel free to keep babbling, it's a free country.
April 14, 2009 4:01 PM | Reply | Permalink
Relating your personal experience as imperical evidence. The last candard of an out-of-touch fool.
My parents didn't know a soul who voted for Nixon in 1972. Guess that means McGovern won.
April 14, 2009 4:10 PM | Reply | Permalink
Hey, I just busted you on the difference between credit and debt. You (obviously chagrined by your own ignorance) change the subject to argue that credit is not frozen.
Oddly enough, a loan is a two-party contract. When the lender extends the credit, the borrower goes into... um... debt. A strange thing, and hard to comprehend, I know. But it's actually true. Come back when you're old enough to take out a loan, OK?
April 14, 2009 9:16 PM | Reply | Permalink
Yes, it's about Krugman's massive ego. He's not fooling anyone either.
April 14, 2009 3:48 PM | Reply | Permalink
Actually, I think Krugman himself is not always willing to think sufficiently outside the box; in many ways he's still within the failed consensus that supports the continued existence in more or less its current form of a failed financial system. There's a lot of groupthink in economics, even among liberal economists.
April 14, 2009 3:54 PM | Reply | Permalink
Everybody's got their opinion, and I know enough about economics to know that nobody, even Krugman, knows the future with certainty - especially in such uncharted waters.
So given the multiple choice question of "Who do you trust?" I'll answer the same way most Americans do: I trust Obama.
April 14, 2009 3:29 PM | Reply | Permalink
Declarations of intellectual bankruptcy don't get any more frank than that. At least you're honest, unlike some who pretend to know what's going on when their real agenda is the same as yours.
April 14, 2009 3:32 PM | Reply | Permalink
To say that you trust someone's judgement is a declaration of intellectual bankruptcy? Are you a nihilist?
And what is my agenda, if you are so sure?
April 14, 2009 3:46 PM | Reply | Permalink
LaBonne is a faux intellectual. His writing style is pretentious and he often mis-uses words. He is condescending in an effort to cover up his ignorance. He doesn't know the difference between credit and debt. LOL.
It's pretty much a crap shoot as to what will work in this economy. Nobody knows. Krugman is so emphatic in his assertions but he's just guessing. Frankly, so are people in the administration.
But I voted for Obama and I'm willing to give him a chance to fix things. Besides, he's the only game in town and I'm going to stick with him until I have *evidence* that he's screwing up. Dire pronouncements by Krugman and others is NOT evidence.
April 14, 2009 3:56 PM | Reply | Permalink
He's in office whether anybody "sticks with him" or not. Perhaps your ignorance extends to not understanding that we don't have a parliamentary system.
Obama himself, being far smarter than you, has said repeatedly that he welcomes disagreement and doesn't think blind agreement is a good thing.
April 14, 2009 4:03 PM | Reply | Permalink
It's not blind agreement. I just don't have any reason to be AGAINST him on the economy.
You see, unlike you I don't take marching orders from Krugman.
April 14, 2009 4:22 PM | Reply | Permalink
Down boy!
That's not intellectual bankruptcy, that is our representative system.
Since we don't live in a direct democracy, we have to vote for the people we can trust to make good judgments on our behalf.
April 14, 2009 3:53 PM | Reply | Permalink
How about informing yourself and using your own judgment? As a citizen of a democracy is supposed to do?
Your agenda, clearly, is "trust Obama whatever he does". To which I say "trust- but verify". Obama made some pretty dubious claims in that speech, some of which I addressed above.
April 14, 2009 3:51 PM | Reply | Permalink
>>How about informing yourself and using your own judgment? As a citizen of a democracy is supposed to do?>>
How about recognizing that's exactly what he has done.
April 14, 2009 4:04 PM | Reply | Permalink
Reflexive Obama supporters, like you, will turn on a dime if and when he changes course. ("Oceania has always been at war with Eastasia.") It will be amusing to watch.
April 14, 2009 4:08 PM | Reply | Permalink
Yeah, it's awful. I campaigned for Obama for nearly two years. Knocked on doors. Registered voters. Worked the polls. Gave money.
It's a shame I would still be supporting him 80 days after he was inaugurated. I should be more like you. How dare I support the president??
April 14, 2009 4:18 PM | Reply | Permalink
I'm glad you didn't come knocking on my door. Probably would have turned me off Obama.
April 14, 2009 7:31 PM | Reply | Permalink
There was no chance of that. I didn't canvass in the mental wards.
But given that you've been bashing Obama since inauguration day, it hasn't taken much to turn you off him . . . if you ever were on him.
April 14, 2009 7:40 PM | Reply | Permalink
How is that a given? You've been a fly on the wall at my place? You're making things up. Seems pretty chronic.
April 14, 2009 8:02 PM | Reply | Permalink
I don't entirely agree with Krugman and the rest, but don't blame them for speaking the truth, nor for the attention they get. One of the main reasons Krugman and those supporting nationalization have received such attention is because the White House has hasn't provided any honest rebuttals.
The White House could have specifically addressed Krugman's comments months ago. They chose not to do so, and to my mind, have still not honestly engaged his criticisms.
When Obama was previously asked about nationalization, he didn't debate the topic honestly. He used a straw-man to dismiss nationalization. That straw-man was his comment that Sweden had like 5 banks, while the US has thousands.
It's a straw-man because in truth, nearly half of the US Banking sector is made up of just FIVE BANKS. The same number Sweden temporarily nationalized.
The White House have brought this problem on themselves. In ignoring these criticisms, they've taken scores of legitimate hits from Krugman and other renowned economists.
Now it seems the White House may have stopped ignoring the arguments of their critics and are starting to try addressing them. The bad news is that I don't believe the White House's latest reasoning is any more truthful than their previous justifications.
Krugman and the rest seem to believe that the reason Obama is traveling up blind alleys is that the Wall Streeters have taken over the administration's agenda. That these Wall Streeters believe the problem is just one of confidence, not true rot. Further, that Geithner and Summers are so self delusional that they believe papering over the rot will fix a termite infested structure.
Personally, I don't think Obama is nearly stupid enough to be spun by the likes of Geithner and Summers. I think Obama is just trying to hold down the fort until he gets his agenda passed.
When and if Obama decides to nationalize, he can do so with the mere nod of his head. All it will take to nationalize the banks is a single well sourced White House press leak that banks x, y, and z are going to be nationalized. The banks' stocks will immediately crash through the floor, and Nationalization will be a foregone conclusion.
The problem is that this will cost a trillion + dollars. I believe Obama rightfully knows that if he's forced to spend that much additional money on the already-hated banks, his popularity will -temporarily- drop through the floor, as will his prospects of passing his short-term agenda.
My belief is that Krugman's largely right, the economy is going to get a lot worse before it gets better, and that nationalization of many major banks is almost certainly in our future.
While I believe Krugman is largely right, I don't believe Obama's actions have been largely wrong. Quite simply, I don't believe Obama is stupid or self delusional enough to buy into the Wall Street madness, so I can only surmise that he's engaged in a delaying action. Trying to postpone the inevitable bitter pill of nationalization for a few more precious months.
April 14, 2009 4:11 PM | Reply | Permalink
This reminds me: I have to read "War & Peace." It's shorter than this post.
April 14, 2009 4:24 PM | Reply | Permalink
I think you are right on.
Note the key word Obama said today: they don't believe in preemptive nationalization.
Why that qualification?
Nationalization may be inevitable, but doing so too early or in a haphazard fashion could cause more harm than good. Which I completely agree with.
April 14, 2009 4:33 PM | Reply | Permalink
This is the most depressing comment thread I've seen at TPM in months.
The rapidity with which the topic of the right stragegy for dealing with bank capitalization and credit availibility problems in the context of a sui generis economic meltdown has become bitter and personalized and generally toxic among Democrats (and the toxicity is exclusively intramural on this one) just worries the hell out of me. Call it my own personal PTSD response, but it reeks of the kind of "Who's Afraid of Virginia Woolf" brawl that's just reeks dysfunction to the GDI's and, as a result, has been the GOP's salvation time and again. At this point, its all they got--hope that we degenerate into the kind of multi-party dog fight that's been the party's norm since the 60s and thereby look like adults by comparison.
I am not trying to stifle dissent or discussion here here, but a little mutual respectfulness (even in the absence of genuine respect--some call it "courtesy") would, at the very least, be conducive to a more fruitful discussion, wouldn't it?
Two other things that would be helpful, in my strictly personal opinion.
First, how about everyone acknowledging, at least to themselves, that everyone involved in this debate wants what's best for the country? That's what separates us from the Republicans at this point--they want what's best for them politically, and, right now, that's for things to get worse.
Second would be for both sides of this fight to stop talking like there is a risk-free option. The truth is that both options--and any other option anyone can think of to try to fix this mother of all financial clusterfraks--entails enormous risk. Success or failure of anybody's plan is contingent upon the occurrance or nonoccurrance of circumstances that are often going to be beyond the ability of the president or the Fed or any number of celebrated economists to control or foresee. Indeed, it is entirely possible that there is no right answer. If nothing else, I'd think acknowledging this help you to accept and genuinely hope for the best--i.e. hope you're wrong--if the other side's view ultimately prevails.
April 14, 2009 6:19 PM | Reply | Permalink
And yes, I said "just reeks of" twice. Copied when I should have cut and edited, dammit.
April 14, 2009 6:24 PM | Reply | Permalink
Look, you need to come to terms with the fact that it's far from just Krugman and not even just liberals who think Geithner is not up to the job and his plans are wishful thinking. Here's this, for example, from that left-liberal bastion the Financial Times:
http://www.ft.com/cms/s/0/f715e3b0-25ef-11de-be57-00144feabdc0.html
This is not a game. If Obama fucks this up he and the Dems are toast. Anyone who thinks he should be shielded from criticism from those who believe he's on the wrong track is NOT helping him.
April 14, 2009 7:03 PM | Reply | Permalink
>>Indeed, it is entirely possible that there is no right answer. >>
You are correct. That is precisely why I have no patience for the endless Krugman-quoting about how Obama's plan will definitely fail. It just might but Krugman doesn't know that; it's like he's praying for it to fail. There is NO DATA to support his contention. In fact, there is some minimal data to suggest it just like work.
Obama is on a path right now. He's not going to change that unless and/or until he believes it's not working. So I don't see the point of constantly bashing him and calling people who say "give him a chance to do it his way" sheeple.
April 14, 2009 7:10 PM | Reply | Permalink
Let us stick with the facts. Putting banks through receivership works. And will work if Obame goes that way. Geither's plan may work, but the pricetag has been and probably will continue to be astronomical. Why not protect the tax payers, bite the bullet and go for the sure thing rather than speculating with $1 TRILLION.
Beause Summers and Geithners are in his room, not Volker.
April 14, 2009 7:41 PM | Reply | Permalink
Not to mention that at this point, trying to maintain the pretence that it's all about Krugman is just plain old lying. The people still using this pretence for cheap rhetorical purposes know perfectly well that it's bullshit.
April 14, 2009 7:50 PM | Reply | Permalink
Biting the nationalization "bullet" isn't going to be cheap either.
As I posted above, I believe Obama isn't (currently) nationalizing the big zombie banks because it would ALSO cost upwards of a Trillion Dollars. I agree that the Geithner-plan is probably more expensive and less likely to succeed than full nationalization. The advantage of the Geithner-plan is that it will only slowly bankrupt the FDIC.
Were Obama to fully nationalize the 4 or 5 largest zombie banks, it bankrupt the FDIC overnight. (Remember, the banks went nearly a decade without paying a cent of FDIC insurance premiums.)
`
Obama can start the nationalization with a nod of his head, but paying for it is a different matter. It would probably require congressional action, a very, Very unpopular congressional action. I could easily see it going straight down party lines with the Democrats bearing all of the weight.
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I think Obama is using the Geithner plan as a delaying tactic. He knows he'll probably have to - eventually - nationalize some of the largest banks. He simply wants to get his domestic agenda passed before angering the public by ploughing another trillion dollars into the now-Hated banks.
When Rahm Emanuel talks about the political realities of the situation, I believe it's this he's talking about, not about protecting the Wall Stree status quo.
April 14, 2009 8:00 PM | Reply | Permalink
You're essentially saying that Obama is consciously taking the Japanese path and knowingly supports the establishment of zombie banks. Isn't the political reality that Obama is in the pocket of the Wall street and he's surrounded by Goldman Sachs operatives.
April 14, 2009 8:08 PM | Reply | Permalink
No, I'm saying that while Obama is clearly eating sushi today, he'll start eating Swedish meatballs as soon as he can afford them. The problem is that they're the most expensive item on the menu.
There's a reason the Japanese went the "Japanese route". It was because successive Japanese governments didn't have the political juice to do anything else. It wasn't until the early 2000's that the Japanese zombies were finally forced to face the mirror.
Nationalization carries with it a very heavy political price. I don't blame Obama -one bit- for wanting to get at least some level of health care reform passed before going on a very unpopular but equally necessary zombie hunt.
April 14, 2009 8:20 PM | Reply | Permalink
But why wait? Why not go for the sure fix ASAP. Japan's debt is 170 % of GDP while Sweden's debt is 36%. It took Sweden 5+ years until the unemployment rate started to go down. Spending another few trillions on a bailout package may cost the democrats the midterm election and Obama's re-ellected in 2012. He has the political capital to do it now. He may not in a year or two. By the way we all know that Citi, BoA etc are too big to fail, their structures must be changed.
April 14, 2009 8:32 PM | Reply | Permalink
I can't put it much clearly than I've put it above, but here's another try.
Doing the very unpopular thing before you try to get your other legislation passed is not a smart way to run a government. I believe he's waiting to do the very, very unpopular nationalizations AFTER he gets the big parts of his domestic agenda passed.
Were he to nationalize now, the odds of getting his domestic agenda through would be severely threatened.
One point that Krugman never seems to mention is that nationalization would be very unpopular! Nationalizing the big zombies would immediately bankrupt the FDIC.
A Democratic House, Senate, and President would then be immediately forced to pass a bill giving more taxpayer dollars - hundreds of billions, perhaps a trillion - to these much Despised banks. It would be hugely unpopular with voters of all stripes and affiliations.
Nationalize now = makes good economic sense, -BUT- threatens health car reform, threatens EFCA, threatens Obama's domestic agenda.
Nationalize later = Health care reform is passed, EFCA is passed, Obama's Domestic agenda is passed, then the very unpopular nationalization happens.
The order in which these things occur is all important.
April 14, 2009 8:52 PM | Reply | Permalink
".....nationalization would be very unpopular!" in this environment, what do you base that on? Any references, polls to back that up? The Geithner $1 Trillion dollar gamble is unpopular.
'Nationalizing the big zombies would immediately bankrupt the FDIC."
Why? The government would be the new stockholder. All the deposits would be guaranteed by the taxpayers.
April 14, 2009 9:53 PM | Reply | Permalink
You're mistaken about some key facts.
Firstly, bank deposits are Not directly guaranteed by the US Government. They're guaranteed by the FDIC. The FDIC is not funded by tax payers, it's funded by premiums paid by the banks.
Were the 4 or 5 largest zombie banks to be nationalized, the FDIC's reserves would be completely (and immediately) wiped out.
This would require an immediate and massive cash infusion of taxpayer dollars. Hundreds of billions, perhaps even a trillion or more in tax payer dollars. That money would probably have to be approved by a Democratic House, Senate, and President. They would all pay a sky high political price.
The Geithner-Plan doesn't use taxpayer money, it uses FDIC money. That's why the plan is not horribly unpopular with the average voter.
Nationalization could not happen without massive amounts of tax payer funds. Solely because of this, nationalization would be horribly unpopular with the average voter. It's all about the money and where it comes from.
The Geithner plan uses bank-money to "save" the banks. Nationalization would use all of that, and a lot of taxpayer money as well.
My main fault with Krugman's arguments are his continual failure to mention this little tidbit.
April 14, 2009 11:00 PM | Reply | Permalink
"You're mistaken about some key facts.
Firstly, bank deposits are Not directly guaranteed by the US Government."
- Put on your reading glasses, I never claimed that! Indirectly they are. The are backed by the US taxpayers. If FDIC runs out of money, the taxpayers will be there. Increasing bank fees won't help much.
"Were the 4 or 5 largest zombie banks to be nationalized, the FDIC's reserves would be completely (and immediately) wiped out."
-Why?
Hence the difference between bankruptcy and nationalization. You're making an assumption that people will starts withdrawing money from the bank accounts. Those will be guaranteed by FDIC, people will keep their money in their accounts and Citibank will still exist, you just have a new owner. Still the same company!
"The Geithner-Plan doesn't use taxpayer money, it uses FDIC money. That's why the plan is not horribly unpopular with the average voter"
WRONG! TARP (tax money) money will be used + FDIC will borrow money. Where is FDIC getting the money from? It has already backed loans (hence AAA rated) to Goldman Sachs, Citi, BoA etc in the amount of $100+ billions. They can only back up even those liabilities because the taxpayers are behind them. And already they have asked congress for access to the treasury checkbook if needed.
-FED will be "printing it" and when the losses accumulate, the tax payers will have to pay the bill (yes FDIC's fees will increase).
"Nationalization could not happen without massive amounts of tax payer funds. Solely because of this, nationalization would be horribly unpopular with the average voter. It's all about the money and where it comes from."
-Where did AIG get the "nationalization" money from? FED! You could have used the 2nd part of the TARP money (GS paying back $10 billions!), FED money (YEAH! owner of AIG) and the extra $200+ billions that Obama has asked for these type of situations in the budget. With liabilities for the US taxpayers amounting to more than $12 trillion, few will care about another trillion or two.
Most of the money is already there, only thing lacking is some balls.
April 15, 2009 1:10 AM | Reply | Permalink
We're getting well into the weeds here (and the text columns are getting too narrow to read properly).
To sum up my position, Nationalization will very probably and Very transparently require the tax payers to put up a whole load of cash as soon as Nationalization happens. This will have to get through congress and will be HUGELY unpopular.
Geithner's plan probably does cost more, but it hides the tax payer liability and doesn't require huge immediate sums be paid out of tax payer coffers. Yes, it's a shell game, but it's one that serves getting health care, EFCA, and the rest passed before nationalization steps all over everything.
I'm with you on this, when looked at without a political filter, I believe immediate nationalization is a far better plan. That said, the unfortunate reality of our current politics makes immediate nationalization a worse plan, at least for now.
In my estimation, Geithner's plan is a stall, a delaying tactic. As soon as Obama gets his agenda passed, he'll seriously consider nationalization. At a guess, the big zombies have until August, perhaps September, to get their houses in order. Some will make it, some won't.
April 15, 2009 1:57 AM | Reply | Permalink
First, how about everyone acknowledging, at least to themselves, that everyone involved in this debate wants what's best for the country?
I don't agree with this, though.
I think there is at least one faction in the debate who wants nothing except to damage and/or end the careers of Tim Geithner and Larry Summers as part of some larger internecine struggle about which faction holds power in the Democratic party. What happens to the country is a more distant concern.
I think there is at least one faction in the debate who wants to simply bolster whatever Obama is doing-- either out of loyalty, or so that he'll have "political capital" to achieve something else they want-- and are possibly indifferent or ignorant toward what Obama's banking policies do to the country.
I think there is at least one faction in the debate that is perfectly happy with things going very, very badly for the country in the short term; and is focused only on exploiting the crisis to achieve some larger change that, they believe, would be ultimately what is good for the country in the long term. (And, of course, if that's your goal, then maybe it's even a good thing for the short-term crisis to get worse).
I think there is at least one faction in the debate (let's call them "Republicans") that just wants Obama to fail, period, so that they can swoop in in the 2012 or 2016 elections with someone they want.
I think there are a lot of people in this debate-- if you can call it that-- who are thinking in this debate in political, ideological or factional terms rather than in terms of the question "what is practically best for the country as a whole"?
Aside from this, I'd like to note that this isn't about "the party" or "Democrats". This is about the people on a small circle of websites, yelling at each other. This "debate" we are having here is not part of the national political discourse. It does not matter who wins it. It would not matter if it didn't even happen at all. People who do not read this small circle of websites are focused on a completely different set of debates and issues. (This would of course all be worth it if the debate itself enriched the understanding of the specific people reading these websites... but with so many people arguing in bad faith, such an outcome seems to me unlikely.)
April 14, 2009 9:15 PM | Reply | Permalink
You couldn't be more wrong. This is a real debate with real consequences.
The debate we're having is the exact same debate that Krugman and many other economists are currently having with the White House. While the White House is not specifically be listening to us, they're definitely hearing what Krugman and the rest are saying.
The purpose the blogs serve is to keep the issue alive, front and center. (Although I no longer consider sites like TPM and HuffPo to be mere "blogs")
For instance, I very much doubt Obama would have even bothered to clarify his position on Nationalization today were it not for the critiques of Krugman and the rest.
This debate matters. In time, we'll know who were the winners and who were the losers.
April 14, 2009 9:29 PM | Reply | Permalink
For instance, I very much doubt Obama would have even bothered to clarify his position on Nationalization today were it not for the critiques of Krugman and the rest.
You're suggesting Obama would not have responded to Krugman's critique if Krugman had not made it?
...yes, I think I'd agree with that
April 14, 2009 9:40 PM | Reply | Permalink
That makes no sense.
(i) That's not the suggestion
(ii) Double negative
(iii) Obama needs to be held responsibly. Clarifying his position may result in support from the average citizen.
In contrast, few "prominent" public figures are questioning Obama's military expansion in Afghanistan. I have yet to hear a reasonable, in depth, justification for this move (what's the exit plan).
April 14, 2009 10:26 PM | Reply | Permalink
First, how about everyone acknowledging, at least to themselves, that everyone involved in this debate wants what's best for the country?
NCSteve, your comment would have a tad more credibility but for this post -- particularly points 8 through 10, in which you darkly suggest that those critical of the Summers-Geithner-Obama plan are undermining the country, and therefore are at best deluded dupes and at worst, traitors.
Nice try, though.
April 16, 2009 12:18 AM | Reply | Permalink
Note to Obama, please hit the library and read about the Swedish Bailout system. 2nd, visit the country before you make statements about the it.
"Sweden has a different set of cultures in terms of how the government relates to markets and America's different."
True, the culture of Swedes and their government is to be responsible, unlike America......
The Swedish bank nationalization happened under a right wing government. No socialism at that time. And the stock holders got nothing.
April 14, 2009 8:16 PM | Reply | Permalink
European "right wing" governments are - on most issues - far to the left of the US Democratic party.
April 14, 2009 8:22 PM | Reply | Permalink
Such as?
April 14, 2009 8:35 PM | Reply | Permalink
Health care, social security, defense. Among major issues, the only prominent difference would probably be immigration.
Most major (not fringe) "right wing" European political parties are strongly in favor of single payer socialized medicine. Most of these right wing European parties are strongly in favor of comprehensive social services that far outweigh things proposed by the US Democratic party platform.
Further, these "right wing" Euro parties don't desire to spend nearly the percentage of their GDP that US Democrats propose to spend on our national defense.
So yes, on many of the most important issues, these European "right wing" parties are further to the left than our own President and our own US Democratic party platform.
April 14, 2009 8:59 PM | Reply | Permalink
lol! Trust - if you know it, Obama knows it.
April 14, 2009 9:35 PM | Reply | Permalink
More not-Krugman from the not-liberal Financial Times:
http://blogs.ft.com/economistsforum/2009/04/geithner-and-summers-need-to-address-the-banking-problems-square-on/
April 14, 2009 8:32 PM | Reply | Permalink
As always NC Steve is the more level headed one - sigh!
I don't know enough about economics to join the "discussion" about the solution to this crisis, but none of you here have the authority-education-experience-crystal ball to say who is right. I will do the only thing I can do - wait for the results and then judge.
Fromanotherplanet: Don't kid yourself on that "Note to Obama". Whatever you think you know about economics - Obama and his team know more. Whatever Krugman & Co. are saying - Obama's seen and heard it.
And why is FreeRider being accused of blindly trusting Obama when some of you are doing exactly the same when it comes to Krugman?
April 14, 2009 9:54 PM | Reply | Permalink
Knowing isn't enough, it's about doing the least worst thing out of a bad situation. Even Dick Chaney knew that Iraq would be a mess (comments from Gulf war I), still he want all in.
Eliot Spitzer knew better than transferring $80k in his own name to prostitutes for services.
You really think Obama is well versed in economics? Did you miss the last debate between McCain and Obama? The problem is that Lawrence Summers (And more recently Geithner) economic/financial mindset is stuck in the 90s.
April 14, 2009 10:17 PM | Reply | Permalink