Alan Greenspan backs bank nationalization!!

[FourScore]

Alan Greenspan Backs Bank Nationalization!
by TomP
Wed Feb 18, 2009 at 05:49:12 AM PST

The Financial Times is reporting that the man they describe as the "high priest of laisser-faire capitalism" is backing a temporary nationalization of the insolvent banks:

http://www.ft.com/cms/s/e310cbf6-fd4e-11dd-a103-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fe310cbf6-fd4e-11dd-a103-000077b07658.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fwww.dailykos.com%2Fstory%2F2009%2F2%2F18%2F8435%2F08700%2F866%2F698824&nclick_check=1

"It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring," he said. "I understand that once in a hundred years this is what you do."

Wow! Joining Joe Stiglitz, Paul Krugman, Nouriel Roubini, James Galbraith and other major economists, Alan Greenspan now supports the "left wing, DFH answer" that the Obama adminstration, i.e., Summers and Geitner, has been resisiting. With Senator Graham's support Sunday, I think we're seeing bipartisanship. :-)

More from the Financial Times regarding Mr. Greenspan's comments:

The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

snip

The former Fed chairman said temporary government ownership would "allow the government to transfer toxic assets to a bad bank without the problem of how to price them."

Joseph Stiglitz has said for several months that he believes many of the major banks are effectively insolvent. Stiglitz received the Nobel Prize in economics in 2001. He served as as chairman of the Council of Economic Advisers from for President Clinton from 1995-1997. He was chief economist of the World Bank from 1997-2000 and was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. Recently, Stiglitz said the nationalization was the only way out:

The fact of the matter is, the banks are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster.

Nationalization is the only answer. These banks are effectively bankrupt.

Nationalized Banks Are "Only Answer," Economist Stiglitz Says
http://www.dw-world.de/dw/article/0,,4005355,00.html

Similarly, Nobel Prize winning economist, Paul Krugman, has endorsed temporary nationalization for at least a month:

A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: It seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, Resolution Trust Corp.; paid off enough of the banks' debts to make them solvent; and sold the fixed-up banks to new owners.

snip

Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word – nationalization.

The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

Paul Krugman: Voodoonomics is making zombies of dying banks
http://www.sacbee.com/opinion/story/1556375.html

Nouriel Roubini, the NYU professor and economist who warned of the financial collapse based on the real estate bubble long before it occurred, also endorses nationalization/receivership:

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains.

snip

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.

Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:

First -- and this is by far the toughest step -- determine which banks are insolvent.

snip

Second, immediately nationalize insolvent institutions. The equity holders will be wiped out, and long-term debt holders will have claims only after the depositors and other short-term creditors are paid off.

snip

Third, once an institution is taken over, separate its assets into good ones and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

Nationalize the Banks! We're all Swedes Now, By Matthew Richardson and Nouriel Roubini
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021201602.html

MORE AT:

http://www.dailykos.com/story/2009/2/18/8435/08700/866/698824

[Mme. Defarge]

1. Oops!

And I thought this was a good idea. :blush:

[FourScore]

3. Shocking to agree with the likes of Alan Greenspan, isn't it? n/t

[chill_wind]

2. A powerful consensus from disparate places continues to build.

K & R

[keepthemhonest]

4. Can we trust Greespan anymore? Nt

[denverbill]

5. Nationalize them. Fire all the executives. Replace them with people making $200,000/year.

Then break every bank into tiny pieces, run them profitably, with all profits going back to the Treasury, until all the banks bad debts have been repaid, then sell them to the highest bidder, ban them from merging, and regulate the shit out of them.

[Dover]

6. I would like for them to define "nationalization".

Does that involve giving tax money away with no strings attached, no accountability and no return for the government?

It sure seems to me that they're trying to further bankrupt the government...and US. I don't see
the upside for either.