Blinking on Banks

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Paul Krugman argues that the Obama Administration should just nationalize the banks and be done with it.

The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.

For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.

Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.

Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.

I have to agree with Professor Krugman on this one. Prairie Weather says Obama is listening to too many former Wall Street and financial industry guys right now, and he’s probably right.

11 thoughts on “Blinking on Banks”

  1. It seems as if we’re afraid of words. And that’s because the right has been tremendously effective in their use of language.
    And so, instead of a “Paris Hilton” tax, we were fed a “Death Tax.”

    ‘Nationalizing’ banks sounds like socialism to folks who wouldn’t know socialism if they tripped over it.
    At this point, just do whatever you think is right, Mr. President. The right will fall all over themselves to define things their way no matter what. If you do what you think is right, they’ll be so busy trying to redefine things, they’ll completely show themselves for the immoral jackasses that they are.
    I think the American people are starting to awaken from a 30 year nap, only to find themselves in the middle of a nightmare. And that nightmare was caused by 30+ years of listening to the same assholes spout their Reaganomic BS. I think the American people can now tell the difference between shit and Shinola. It’s taken a while…

  2. C U has it right.
    I watched Krugman yesterday morning on Stephanopoulos talking about nationalizing banks and the first thing out of the dinosaur( actor posing as journalist) George Will’s mouth was: ” That’s communism”. And the funny part was everyone else on the show basically ignored him. funny how the worm has turned.

  3. Notwithstanding the prior post (on how stupid we all are because we get no news), American’s are big grown-up people (excepting the 20% hard right) and we know what’s going on. We’ve all been through the S&L crisis and Resolution Trust Corporation, we all know we have deposit insurance, we know how this all works. It’s the “investors” (gamblers, really) who are freaking out, and the longer we drag this out, the more they will freak out and the bigger the problem will be.

    Nationalize the banks already. Let’s get on with it.

  4. I think you’re right that Obama’s listening to too many Wall St. types, but the problem is, does he have ANY non-Wall St types advising him? I mean, how can he blow off Geithner and Summers if he hasn’t let anybody else in, like Reich, Kuttner, Baker, etc. to side with instead?

  6. I often read Mish Shedlocks’s Global Economic Trend Analysis, a somewhat well known financial blog. Although I disagree with his Ron Paul, free market ideology, which inevitably means lots of Paul Krugman/Keynesian bashing, Mish does get a lot of things right. He’s not some deadhead, ideological Republican – he came out for Obama in early/mid 2008 (sincere apologies to Grateful Dead fans, unfortunate name collision – I don’t mean to insult you).

    In a recent post, Citigroup Begs to be 40% Nationalized, Mish flat out states that “Geithner is attempting to bail out his banking buddies, no more, no less, and he does not give a damn what it costs taxpayers to do so.” This is what most of us feared, the consequence of Obama bringing on board the financial types who were most responsible for creating the mess in the first place. It’s about preserving the status quo instead of cutting out this sick and corrupted cancer that needs to go.

    As a free marketeer, nationalization is anathema to people like Mish, and yet he’s formulated a short list of questions that should be asked before going forward with it.

    BTW, some months ago, Mish wrote Peter Schiff Was Wrong, but I couldn’t comment about it here a couple weeks ago (tech difficulties as the MahaBlog was in transition?). For people who are taken with Schiff, it’s worth studying.

    There’s one theory that nationalization is indeed coming, but Geithner has to try to work some magic first – the problem is that this wastes a lot of money and time, worsening the problem when it finally is addressed.

    I don’t what’s in Obama’s head, whether he really trusts Geithner to fix the problem, or whether he feels he has to take this centrist route – versus listening to more radical voices like Krugman or Roubini or even Soros – so as to not anger the plutocrats (but stiff us taxpayers by socializing the banks’ failures). In a nationalization the shareholders would get nothing out of an insolvent bank. I sense there’s a very fine line Obama’s walking through the multiple crises we’re facing, and that nearly everyone in the status quo – from the plutocrats to the military – are dissatisfied to varying degrees, and so it’s a difficult balancing act. The rightards who watch Glen Beck are even getting their fantasies fed on what could happen if anarchy breaks out and they have to fight the government on US soil – so it’s a very volatile time, to say the least.

    The problem is that Obama is operating in a world where lefty influence is limited to a few isolated voices and an army of foot soliders like us, but little institutional force to confront the machine the right built, ever since Reagan.

  7. ‘Nationalizing’ banks sounds like socialism to folks who wouldn’t know socialism if they tripped over it.

    Very true. But you can’t stop people from trying any kind of scare-tactic to make a plan they don’t agree with look bad. I can’t wait to see just how many people start screaming that nationalization is un-American…when we’ve already nationalized things like airport security (and that one was fairly recent).

  8. Correct me if I’m wrong, but isn’t the idea of Medicare socialism?
    I don’t recall hearing about anyone refusing medicare, medicade, or social security.

  11. Last month’s Village Voice had a really eye-opening article by James Lieber entitled, What Cooked the World’s Economy?” After reading this piece, I hope President Obama will read it and reconsider some of his advisers. Don’t let any of the foxes near the hen house ever again. Someone really needs to do some non-comfy prison time. Maybe a life times worth.

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