As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Wednesday, January 28, 2009

Limits Of The Imagination On The Banks

Timothy Geithner and the Obama team are promising a revolution, but you know, not too much of a revolution.

Another option is nationalizing individual banks or even the entire banking system. This idea has gained ground since Great Britain effectively nationalized the Royal Bank of Scotland last week, taking a 70 percent ownership stake in it and reportedly considering similar moves in other major banks.

Sweden offers the closest thing to a modern precedent among developed nations. In the early 1990s, amid a steep housing downturn, its government took over the banks. Those that were saddled with the worst assets were corralled into the financial equivalent of a holding pen. This period of financial quarantine eventually ended as the economy rebounded.

Could such nationalization of banks happen here, in the citadel of capitalism? The government seized mortgage finance giants Fannie Mae and Freddie Mac in September, as well as insurance behemoth American International Group.

"I think the appetite for nationalization is just not there," said Nariman Behravesh, the chief economist for forecaster IHS Global Insight in Lexington, Mass.

The Washington Post fleshes this out more, with Larry Summers cool to the idea because "governments make poor bank managers." As I think Atrios said today, so do bank managers!

To date, the government has focused its efforts on offering federal funds to banks in exchange for ownership stakes. But the prices of bank shares are so low now that the government risks owning these firms outright if it makes a major investment of taxpayer money.

Explicit nationalization of financial companies has little support among key Obama officials, sources said. Treasury Secretary Timothy F. Geithner and top White House economic adviser Lawrence Summers think governments make poor bank managers and cannot efficiently manage a vast number of institutions, according to some of their associates.

When your worry is that bank share prices are so low that you might up owning them through investment by accident, I think you've nationalized the banks already. If the word "nationalization" is the sticking point because it's icky and outside the realm of "sensible" opinion, so be it. You can change the word. Just don't ideologically oppose the scenario most likely to work because of its nomenclature.

The point is, our "elites" -- those who, as Jay Rosen notes, determine the "sphere of legitimate controversy," place the views of people like me on the very edge (if we're considered within the sphere at all, and frequently we aren't). And everything to the "left" of that is considered in the "sphere of deviance," which means that an enormous swath of ideas and human history, and most certainly "socialism," has been purged from realm of legitimate contemplation [...]

So what does this mean? Well, events have compelled us to consider a course of action that is outside the realm of acceptable debate. Even those Pete Peterson jokers, whose obsessive desire to privatize social security make you want to roll your eyes and shout "get a room," acknowledge that “the case for full nationalization is far stronger now than it was a few months ago." It's not a new idea -- people like Dean Baker, Ian Welsh and a host of others have been saying it for a while.

But as Krugman notes, we will probably first have a host of expensive, unsuccessful "new voodoo" schemes because "Washington remains deathly afraid of the N-word."

Thanks to the collective wankery of those who dictate what is and isn't fit for discussion, we now have no way to reasonably contemplate a measure that could prevent our further economic slide. We'll probably throw a bunch of money at things that won't work before reality forces us to accept a course of action we can't talk about.

It's absurd. Even wankers like Clive Crook have unburdened themselves from the confines of "serious" debate and called for nationalization, because there's simply nothing left in the policy toolkit. The banks killed themselves. Taxpayers are going to have to pay for it, so they might as well get ownership in the process instead of paying far more than the assets of the banks are worth because nobody wanted to say the dreaded "N-word."

Matt Yglesias is on target with this: "When you’re talking about a problem of widespread bank insolvency that’s produced a global depression, then it doesn’t make a ton of sense to be worried about impairing the quality of bank management."

...See also Steve Clemons.

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