The case for nationalizing the banks

[dcsmart]

Less than four months after Congress passed the Bush administration’s Troubled Asset Relief Program (TARP), authorizing the Treasury Department to spend $700 billion in taxpayer money to bail out the banks, the same banks that received the government handouts are reporting massive losses and the incoming Obama administration is preparing to funnel hundreds of billions in additional funds to Wall Street.


In the interim, the financial crisis has deepened and precipitated a global recession that is acknowledged to be the worst since the Great Depression of the 1930s. Millions more workers, told last fall by Bush and Obama that the government bailout, supposedly designed to benefit “Main Street” and not “Wall Street,” would avert a financial meltdown and mass unemployment, have lost their jobs, their homes and their life savings. Meanwhile, the bankers have refused to use their windfalls to lend to businesses and consumers and have instead either hoarded the government cash or used it to buy up smaller firms.


None of the CEOs and speculators whose corrupt and reckless policies brought their own institutions and the global economy to ruin, while they rewarded themselves with seven- and eight-figure compensation packages, and none of the government regulators who colluded in the plundering of the economy have been called to account. The bankers, with the complicity of the government, flatly refuse to reveal what they have done with the money they received from the Treasury.
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FULL ARTICLE
http://www.wsws.org/articles/2009/jan2009/pers-j19.shtml

[MarcMus]

1. Nationalization Is Not the Best Answer

I completely disagree with the bailout. I think t was a short sighted solution, and was basically made because the US Government didn't want to invest the time and money to build an infrastructure to lend the money. Instead we flooded cash into the current banking infrastructure, the one that already was bad at doing its job, in hopes that it would wash the problem away. The problem is that the Troubled Asset Relief Program was just that, to relieve troubled assets. The money we loaned those banks was money they had already spent. They can't spend it again on more loans, especially when frequent loaning got them into trouble in the first place. This is not a satisfactory solution, but at this point it is all we have. We committed ourselves to the course of bailout and to divert now would waste all of those resources, and cost that much again, plus months for the US to set up a way to nationalize without an ungodly amount of loopholes and cracks. The biggest sin here is that the government sold the bailout to the public as "a way for Banks to get money to make loans" because that sounds a lot better than "a way for banks to back the loans they've already made." We keep talking about getting money to main street, but main street already applied for it's loan, then when the payments ballooned they couldn't afford it. The issue has so many layers that to divide it between main street and wall street doesn't really cover the complexity of the problem. Nationalization of the banks would add exponentially to that complexity, and right now we don't have the people, the time, or the money to do so.

[.... callchet ....]

7. This is " Democratic Underground "

Democrat. Democrat ?

[girl gone mad]

10. Not the best answer?

I'm afraid it's probably the only answer at this point.

[bstender]

2. Because the govt. is so competent and un-corruptable!

<sarcasm>

if only it were true, it would be an excellent solution. Ironically it is the perception of govt. oversight that facilitates the criminality. as soon as people think it is "handled", the fun starts.

[Greyhound]

3. "Nationalizing" is an unfortunate choice of term, though essentially accurate.

The propaganda machine has been hard at work for 80 years and that word will invoke an immediate Pavlovian response.

How about replacing the privately controlled financial industry with a national currency system?

[marketcrazy1]

4. we are ALL suckers!!!

Why Are We So Afraid To Fix Banks The Right Way?*
Henry Blodget | Jan 19, 09 8:57 AM

Last week brought another outrageous gift to bank stakeholders at the expense of taxpayers: $20 billion and trash-asset guarantees to insolvent Bank of America (BAC). This followed close on the heels of a similar gift to save the stakeholders of insolvent Citigroup (C).

It's easy to blame these bizarre and undeserved gifts on fear of another Lehman Brothers (Sure, it's infuriating, but think of the alternative!). But that's ridiculous: You don't have to subsidize banks and their stakeholders at taxpayer expense to avoid another Lehman. You just have to fix the banks the right way.

What's the right way?

* Temporarily seize the banks
* Write their assets down to nuclear-winter levels (or, if desired, put them in a big bad bank, as Sheila Bair wants to do.)
* Convert enough of their debt to equity to put them in a strong capital position.

That's it. No taxpayer money. No citizen outrage. No comical "Yes, we're lending" assurances when what the banks are really doing is, sensibly, hoarding everything.

We could do this to Citigroup and Bank of America tomorrow afternoon, and on Wednesday morning, two of our biggest banks would be rock solid (they could also still be publicly traded, under the same ticker symbols, with different shareholders). The banks would have hundreds of billions of dollars of assets on their balance sheets that would be marked at or below market, and they could sell them for gains or hold them as their managers saw fit. They would be liquid and able to lend. They would have no reason not to lend because their assets had already been written down to the worst-case scenario. (Another plus: Management wouldn't have to lie about the value of their assets anymore). Bank employees would still have jobs. Senior management would now be free to pay themselves whatever massive bonuses they wished--without doing it at taxpayer expense. Sanity and fairness would have been restored.

The drawbacks? It's hard to even call them drawbacks:

* Today's common shareholders would get wiped out
* Today's preferred shareholders would get wiped out
* Today's debtholders would take a big hit, with unsecured debtholders ending up with equity stakes.

But wait--isn't that unfair? Arbitrarily deciding that shareholders and debtholders will get dinged? Isn't that an abandonmnent of free-market capitalism?

Please. These banks have already failed. If it weren't for our having already abandoned free-market capitalism, they'd all have ended up like Lehman. Adults made bets on these securities on their own free will (on the apparent assumption that they come with implicit taxpayer guarantees). These adults can now, finally, accept responsibility for their decisions.

For some reason, this simple, fair solution doesn't even seem to be under consideration. Instead, Sheila Bair et al have floated TARP 2: yet another massive gift to bank stakeholders disguised as a huge "bad bank" (a taxpayer funded entity that will intentionally overpay for trash assets under the absurd argument that the government knows better than the market what these assets are worth). Once again, this plan will reward bank stakeholders and managers for their stupid decisions, and it will do it at taxpayer expense.

Why? Why can't we do this sensibly? What on earth are we so afraid of?

*UPDATE: Several readers immediately suggested that "seizing" the banks would be illegal. No it wouldn't: Our bank regulations allow regulators to put involvent banks into receivership. This is what the government did last year with IndyMac and the dozens of other failed banks. And it's basically what it did with Fannie, Freddie, and AIG. This only modification here to the standard "receivership" play is that the banks would remain publicly owned companies. The government would do a horrible job running them, and there's no reason to go down that road...

(Yes, the banks might disagree with the assessment that they're insolvent. And, if they wish, they can take that up later, in court--if they can find plaintiffs attorney who stops laughing). http://clusterstock.alleyinsider.com/2009/1/why-are-we-so-afraid-to-fix-banks-the-right-way

[Greyhound]

5. Ah, but the key is not to "fix" the problems, it is to maintain the illusion

at all costs. If the world has to be plunged into chaos to preserve the system, then so be it. It is their system, and if it is exposed as the fraud that it is, then they are also exposed as they fraudulent thieves they are, and that cannot be allowed.

I really do enjoy reading the myriad of real solutions that are presented here, it gives me some hope that someday, somehow sanity will prevail. I know it is probably a forlorn hope, but it is all that I have.

[marketcrazy1]

6. it a the sad fact

that the VAST majority of Americans refuse to see that there ARE solutions other than those being pursued by our government, solutions that put the blame AND the losses where they should be witch is with the speculators and investors who WILLINGLY took these risks. " prior performance is no guaranty of future results" you could lose most or all of your investment.... that statement is on EVERY prospectus and bond offering made.. that is why it is called RISK!! but we the taxpayers ( for the most part ) seem perfectly willing to absorb all the losses of these banks and their stockholders and investors because we believe it when we are told there is no other way, the "systemic risk" to the economy is too great! we are being lied too! there ARE other ways but they would turn billionaires into millionaires and millionaires into paupers and we cant have that now can we!!!!

[.... callchet ....]

8. Risk means you can lose.

Abolish all debt.

[eridani]

9. Just nationalize the ones who take the money and won't account for it n/t

[Phred42]

11. Start by Nationalizing the FED.

We The People need to be in charge of the currency system - NOT private, for profit corporations