Looking at the continued sucking of our resources into the financial industry's toxic sinkhole, I see no way out of this mess without a total nationalization of the banks.
With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.
Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.
And the new ground rules laid down by Mr. Obama’s top economic advisers for the second half of the $700 billion bailout fund, as explained in a letter submitted to Congress on Thursday, call for the government to play an increasing role in the major activities of the banks, from the dividends they pay to shareholders to the amount they can pay executives.
“We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We are going to go back to a time when the government controlled the banking system.”
Which is what we need at this point. The masters of the universe had it their way for a while and they very nearly destroyed the economy. Banks need to lend, not cover their trillions in losses. If they do not lend, they are not a bank, and the government ought to take them over and run them like a bank for the time being until they can untangle and deleverage everything. It would be a lot better than the current situation, where the government is the main shareholder in the bank but cannot tell the executives what to do.
The only reason this won't happen is if the limits of the establishment imagination are reached, and they cannot think of nationalization in anything but the most icky, ultra-librul ways. Well, the Irish government just took over Anglo Irish Bank, so the role model is out there, and in the "Celtic Tiger" which was a model for conservatives of a thriving capitalist economy, no less.
Once the banks can actually function on their own again, we can set them back out into the market, only with shiny new regulations that assure they cannot agglomerate too quickly or over-leverage themselves ever again.