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Nationalization by Autumn, Bank on It
Like it or not the United States will be forced to nationalize large swathes of its banking system by the time the leaves fall from the trees in Washington.
The tragedy is that we will have to wait that long and that the costs will mount.
The plan to rescue the banks, or, er, the people, as enunciated by Treasury Secretary Geithner, is no plan, only an apparent set of contradictory principles: an ideological one not to nationalize and a political one not to subsidize too obviously.
The plan will fail unless the administration comes out in favor of either subsidy or seizure of failing banks. Either the United States will be forced to nationalize when that becomes apparent or perhaps it is waiting until that failure makes nationalization more politically palatable.
In either event, it is a terrible mistake and the cost will only grow, both in direct terms for taxpayers and more broadly for the growing number of people with too little income to pay tax.
Geithner laid out a plan to apply stress tests to large banks and require those that do not pass either to raise capital (from whom exactly, I hear you ask) or to accept an injection of convertible securities from the government on terms that have not been defined. Banks that take government coin will have limits placed on their compensation and other actions.
There is $500 billion to $1 trillion to fund an aggregator bank which will "partner" with private capital and set prices for distressed bank assets, presumably with some sort of insurance wrapper to limit private capital's downside. There are also measures intended to generate lending directly to consumers, house buyers and businesses.
All in all, it's a bit like watching a man trying to eat a steak without using his teeth.
"The financial system needs at least $1 trillion in tangible common equity to be sufficiently capitalized - the capital holes on financial balance sheets are just too large to be plugged with convertible securities with vague terms," Paul Miller, an analyst at FBR Capital Markets who has been very prescient, wrote in a note to clients.
"Another concern ... is that it does not adequately address the toxic assets on bank balance sheets. It does include a variation of a public/private aggregator bank, but private investors will want to buy assets at distressed prices and the banks will only sell assets at above-market prices."
Those two points form the crux of the issue; for the banking system to work without widespread failure and nationalization we either have to hand out huge subsidies to banks directly, in the form of cheap capital, or indirectly, by giving a subsidy to investors who will pass on part of it to banks as a condition of getting their share. The first is unfair, the second unfair and inefficient.
Playing the Long Game in A Short Life
Of course, it could have been worse. We seem to have escaped calls to magic solvency up by suspending mark-to-market accounting, which would have worked as well as making "six" the new "zero."
And in fairness we don't know how the stress tests will work or if it is possible to fail one. But President Obama did tell ABC News that nationalization "wouldn't make sense" because of the scale and complexity of the U.S. economy and capital markets would make it too tough to manage and oversee. He's right and government will do a terrible job of managing banks, but it will be forced to and may as well get on with it. They seem now to be hoping that the economy turns and bails them and the banks out of their pickle, but that is a dangerous bet.
By the time we figure out that it's not working, when whatever capital we have injected is swamped by falls in asset prices - and remember deleveraging and asset price falls go hand in hand - things will be that much bleaker and the United States will have less room to maneuver.
But ironically, maybe the most hopeful sign yesterday was the negative way in which the stock market and shares in banks reacted. Bank investors clearly thought that this raises the chances of them having their equity extinguished or at the very least their share of future profits diminished.
And Obama is not FDR coming in after a depression was already entrenched, he is leading a country which is only beginning to wake up and to suffer. It is just possible, though not likely, that the administration realizes it will have to take more drastic steps but needs more time to prepare the ground and make that politically possible.
One factor which may come into play is international pressure not to nationalise. What is just about possible in the United States would be far harder in economies such as Britain's with larger banking systems relative to their size and borrowing power.
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Show AllThe tree of liberty must be refreshed from time to time with the blood of
patriots and tyrants. ....Thomas Jefferson
And this will be AFTER the next trillion dollar felony bailout via the taxpayer? Am I correct? Or is that now off the table?
Today the human being has millions of years of evolution to look at in the rear view mirror. But just up ahead is one of the most dramatic episodes ever created by that natural process. Dramatic because the question of human survival is truly in doubt.
The capitalist economic system is exhausted and will soon collapse. From the time of the collapse of feudalism and its birth in the Industrial Revolution, capitalism was always destined to become a dominant global force. Globalization will be a historic marker as the zenith of its existence. But globalization robbed the system of the only thing that kept its fatal internal contradictions at bay—growth. Capitalism has conquered the planet, it has nowhere else to feed. The time of its death is at hand.
There have been riots in Greece and Latvia that threatened to bring down the governments of both countries. There has been civil unrest in Europe and preparations for it in China, India, Russia and the United States. Skirmishes around the world are signs the two most powerful groups that capitalism creates are beginning to engage in a final battle for power. Marx called them the bourgeoisie, the ruling class, and the proletariat, the working class. It can be most simply described as the clash between the wealthy and the working people.
The fight is inevitable and it will destroy one class or the other. Then on the ruins of the old system, the class that prevails will reorganize society along the lines of their dictates. If the bourgeoisie remains on top it will not mean the restoration of capitalism to health and stability. It will mean the depopulation of the planet and the enslavement of man in a world described in the dystopian literature of Orwell, Huxley, and Atwood.
"and the enslavement of man in a world described in the dystopian literature of Orwell"
I agree the post is pretty well formulated and at first glance seems to make sense.
The only part I have problems with is the quote above. I have lived in place in Eastern Europe where the proletariat was in charge for 40 years and what malcolm is describing at the end is exactly what happened.
Personally I think man's need for freedom will crush anyone who tries to oppose it. It happened before it will happen again.
i keep hearing that excuse. interestingly only from people who only lived in the west, especially the US, but trust me trust me: it was the proletariat being in charge. mediocrity was promoted, corruption was rampant and all the good stuff
i'm not only talking stalinism which was actually condemned there after Stalin died. the years after 1953 were just as bad.
the main problem with egalitarian societies like some people image is that they don't work. how long do you think someone will work until they realize that someone working less gets the same rewards? or how long someone will try and come up with some innovation until they realize the idea will be stolen from him/her and it now belongs to the people and he's still stuck in the same rathole with no rewards.
and, as we got to "stuff" belonging to people, how long until people do not care what happens to "stuff" because it's not theirs personally?
if you think the "burgeosie" is exploiting you wait until you piss off "the people" and get to dig some canal (or install solar panels) in the middle of the Mojave at noon.
personally i have lived thru it and i know how to survive in a society like that but most people in the US have not.
"inflexible, corrupt & tyrannical bureaucracy were in charge"
You hit the nail on the head with that one. That's what you should be expecting.
"Were there democratic structures in place, so that workers and communities were able to make decisions on the policies that directly affected them"
yes there were. they were called the comitees of the party. each city, county etc had one. (analogy with US, think the wall street CEOs)
"people on Wall Street get rewards that are thousands of times more that what's earned by teachers and nurses."
you are correct again. however teachers and nurses can lead a decent living with what they make. they are not being sent to forced labor camps if they disgree with their leaders. they also have enought food for themselves and their family.
David, lemme make an analogy with something you might be familiar with. A normal working family in that society would be at the level of a family on welfare here. think about the same type of housing, nutrition etc.
I keep being amazed. It's been only 20 years since the fall of the most oppressive regimes in history and people don't know or don't want to believe what happened there and are still promoting a failed experiment thinking it will work this time.
US style capitalism, the deregulation that led to the bankers paying themselves tens of millions a year despite running their banks down the toilet doesn't work. True.
Hard core marxism, that some here wish for, has also been proven to not work.
If the current economic depression is "proof" that capitalism doesn't work, then, the collapse of the economies of Eastern Europe ~20 years ago is "proof" that marxism doesn't work either.
"It sounds closer to the opposite -- as though an inflexible, corrupt & tyrannical bureaucracy were in charge"
Well, this is the problem. How do you prevent the "proletariat" from becoming an inflexible, corrupt & tyrannical bureaucracy?
How do you prevent the "proletariat" from declaring someone who disagrees with them as a "bourgeosie", a "house negro", who shall be "reeducated", in some camp somewhere?
Concentrate too much power anywhere, whether it be the corporations, the government, the Party, or the "proletariat", and you will end up with mediocrity, inflexibility, corruption, abuse of power, tyranny.
"That logic is not valid. As I wrote above, what collapsed in 1989-91 in E Europe was not Marxism."
Right. And some might argue that the system in the US is not capitalism. After all, how can the concept of "too big to fail" exist in capitalism, and a true free market? At which point, we end up arguing in circles about what is "Marxism" and what is "capitalism". I'm well aware of the argument that what collapsed in Eastern Europe was not Marxism. I tend to view economics from a Marxist viewpoint, BTW.
How do you define Marxism? A system of governance? A system of running the economy? A system of viewing and analysing the economy?
"Furthermore, global capitalism had plenty to do with why Stalinism collapsed; while in today's crisis, capitalism has died by its own hand. It can blame nothing but its own intrinsic failings."
And in the real world, so what? Dead is dead. A chicken that had its neck wrung, or one that died because it ate too much, is still a dead chicken.
"And there is no question that what's now happened in the US proves that capitalism doesn't work. (The fact that you put the word 'proof' in quotes suggests you're in denial about this.)"
I could argue that you're in denial about Marxism. You claim that the countries of Eastern Europe weren't really Marxist. And one could also claim that the US, or the UK, aren't really capitalist. Not when the governments are using billions, even trillions, to prop up corporations that are "too big too fail". I certainly am not defending, or in denial about, "capitalism" as currently implemented.
Is it time for The Federal Reserve to be "Nationalized"?
So far, President Obama has refused to tell the American People that the United States has a 10.7 TRILLION DOLLAR National Debt.....and, that debt is budgetted to increase by 1.7 TRILLION DOLLARS in 2009....that would mean a National Debt of 12.4 TRILLION DOLLARS by January 1, 2010.
Give me a break! The "Robber Barons" have been stealing the money for 8 years and could care less about the American People, Democracy, or Patriotism. They only wanted the POWER and the money that went along with that.
The problem has been "American Capitalism" and people like the: Rockefellers, Bushes, Kissingers, and others who ran the system into bankruptcy for their own personal gain.
The robber barons have stealing for a whole lot longer than 8 years.
The biggest stealing went on in the 1990's under deregualtion imposed under a Democrat president.
---USAn---
The the people who set up this economic mess under Mr. Clinton are the same people running the "recovery" under Mr. Obama: Rubin and Summers and Giethner.
"The biggest stealing went on in the 1990's under deregualtion imposed under a Democrat president [sic]."
Sounds like you've been reading Time Magazine again. ;)
Here's a tip: Saying "Democrat" when you mean "Democratic" makes you sound illiterate.
8 Years without a Leader
Saying "Democratic" when you mean "Democrat" is a misnomer.
Actually the robber barons have been plundering the economy and the country since Reagan when the national debt was under one trillion dollars.
How are the banks going to be nationalized? Many of them could have been already purchased outright simply by purchasing all of the outstanding common stock for much less money than they have been given in these "bailouts" without oversight or accountability. The taxpayers are being royally ripped off and obviously they don't care or they'd already be in the streets.
-- ekaton aka d.k.shaw
You stated: "The taxpayers are being royally ripped off and obviously they don't care or they'd already be in the streets."
C'mon. You claim causation by saying they "obviously" don't care or they'd already be in the streets. Perhaps you may consider that they don't KNOW, so therefore, how can they CARE about that which they don't know about??
Too many of us are too preoccupied with our latest PlayStation or American Idol series to be bothered about something this esoteric.
So please, enough arlready with the they don't care: they just don't KNOW.
I agree with the author. Many banks such as Bank of America probably have a negative net worth now. So do many life insurance companies. Nationalizing these bankrupt non-entities now will toss a few crooks out (who won't get their bonuses), but more important it will slow (I didn't say stop) the hemorrhaging of the banks.
May logic make a comeback.
Mr. Obama is a corporate shill. Never forget who he works for-Wall Street.
Compare the view of that Great American Malcolm X to a view of Mr. Obama, it may become very clear who is running and ruining the country and who's side Mr. Obama is on.
MALCOLM X: THE HOUSE NEGRO AND THE FIELD NEGRO
http://www.youtube.com/watch?v=znQe9nUKzvQ
Currently, Mr. Obama is saying to Wall Steet: "What's the matter, Boss, we sick?"
If the intent to Nationalize the banks then it should be DONE. All that will happen the more they delay is that the Bankers will plunder and loot everything they can from the same.
They will strip away all the true assets and place them elsewhere, and leave empty shells for the new owner, the Government of the United States to take over.
They will then come back and sue the same Government for Compensation for their seized assets.
Obama will also make sure the bankers get enough taxpayer-funded bailout money to tide them over before nationalization occurs. Bankers need a lot of dough to maintain their lifestyles...owning jets, yachts and a half dozen mansions is expensive. You working stiffs just don't understand.
Do people even know what it means to "nationalize" the banks? It means the government owns them. Do we really want the government owning the banks, our houses and the stock of all corporations? I believe that's what they had in the Soviet Union, which, by the way, went defunct as a result.
Dave - Erstwhile Urban Wanderer
Do you realise that you don't have to have the banks nationlised forever? That once the banks are fixed, and the economy has recovered, you can sell the banks off?
This has been done by countries over much of the world. This is what the IMF tends to prescribe for (developing) countries, for example, East Asian countries during the 90s, whose banking systems explode. The Swedes also did this.
"In either event, it is a terrible mistake and the cost will only grow, both in direct terms for taxpayers and more broadly for the growing number of people with too little income to pay tax."
The important thing is that the euphemistic "toxic paper" gets transferred to the peasants' account. Then the US will no longer be too big to fail. If Obama's bank bailout board focuses, they can move a substantial amount of the burden by fall.
The JP Morgans of the world will then be in good shape to pick over the bones for a new start with the same people at the top.
what's all this talk of nationalization? the dems are in power now but the repubs will take over at some point. do you want them to own your mortgage, you loans etc. personally i don't like either one.
how about good old bankruptcy? no more money, bank closes their doors. personal deposits up to 250k are insured by the government. on my way home i see several banks on both sides of the road. some (probably most) of them will survive. most likely the small ones with good customer service and less gambling lust.
i say let them fail.
Sure,
First, they pass a $789 billion "stimulus bill", now Obama is going to take care of the foreclosure problem, the gub'mint already appropriated billions to bail out the financial sector, and who the heck knows how those funds were spent? Next, we bail out the auto industry, then we have a total 1.2 trillion dollar handout to the banks and placate the Liberals by saying it is a Nationalization program.
We've got a multi-trillion dollar "defense" budget.
Who the hell is paying for this, the 29 people who are still working? They're making minimum wage and need rent subsidies and food stamps to make ends meet.
Guess the treasury is just printing money and handing it out to the rich and to the governments. Government workers pay payroll taxes, so my estimate of 29 people was very low.
There is a better way, but no one has contacted me yet.
Mike Morin
www.peoplesequityunion.blogspot.com
mlarosamorin@earthlink.net
(541) 343-3808
Ben Bernanke and I went to the same school. I had a chance acquaintance with him while I was at the race track. While I was watching a race, I reached back for my wallet and shook Ben's hand.
Not much has changed for me, but Ben has gone onto bigger and better things like running the Federal Reserve.
davidwdeitch
Nationalization in itself is not a panacea for treating the financial plague infecting America and the world. More important than nationalization is the necessity of writing down the toxic assets. If nationalization includes subsidizing the banks and protecting all that worthless paper then where is the advantage to the American people? I would prefer bankruptcy to nationalization if the result would wipe the books clean of the poison.
When we get upset and mad at injustices we need to VENT
We used to vent with yelling or a shake of the fist or passive aggressiveness.
Now we VENT on the INTERNET, and that's that.
Thanks Bill and Steve.
Ah, now i feel much calmer and will move on to another CD article.
The nationalization will come too late because the waffling of the elected officials in Congress and President Obama is forcing them to try to hedge their bets against pissing off their real constituency, the moneyed elite. It may be too late to do it even now.
Banks will be reluctant to take federal funds because of the perception they have that investors will see them as bad managers of money and such, and that the necessary private component to the recapitalization of the banks will not be there because .... The logic is circular, but that is what Wall Street and most of its economists operate on. This is, and has been, what is making the decisions for the economy and, sadly, the nation.
Something else to think about: most of the banks in this country are state chartered. Will those banks that want to stay state chartered be reluctant to take federal bailout money because they fear that they will be subject to becoming a federal bank with its own set of rules, that may or may not be better for them than the state ones they currently operate under?
DaveEriqat February 17th, 2009 1:08 pm
The USSR went defunct because of many reasons. Owning the means of production wasn't one of them. For starters, check out how “self-sustaining” was their spending on their military in comparison to their revenue intake, their total tax collection. Ours is worse...
Thanks for the information.
Nationalize insolvent banks now. Then, nationalize health insurance and big energy. Start enforcing antitrust laws and breaking up oligopolies so that no entity is "too big to fail." What kind of economic system do we have when coporate welfare is considered the most rational decision?
People in Asia are already dumping currencies in a frantic bid to buy dollars. This will cause a further erosion of confidence as the currency traders loot their accounts to sell dollars, which will in turn cause a run on the banks in Europe, which will cause a further collapse of the international banking system. I would not be surprised to see the dollar collapse to Icelandic Krona levels.
This is not a recession.
This is not a depression. And it's not your grandpa's depression. This time the populace has access to information via the Internet that many governments wish we did not have.
This is a collapse of the entire capitalist system as great as the collapse of Soviet style Communism.
And it was all triggered by the insanely high oil prices of last summer.
If you don't know how to plant a garden or do basic repairs, NOW is the time to start learning. By this time next year, w could all be back to barter.
Walk in peace.
The most important thing, and this is often recommended, is to wipe out the common shareholders of the large banks. Wiping out the common shareholders, including a lot of people with retirement accounts, will again send the stock market plunging. A plunging stock market will contribute to another loop in the downward spiral we have been on since Washington Mutual et al were seized by the government last fall. This creates a unique and unprecedented opportunity to buy stocks at ridiculously low prices. Not just bank stocks...nearly all stocks! Keep saying 'nationalization' as much as possible. I have already picked out a couple of stocks to buy tomorrow. Yes, they will probably go even lower. So...I am holding back and buying a little at a time and getting better and better bargains each week. Of course, if the world actually sinks into an armageddon scenario then my stocks will never be worth much. But in that situation it really won't matter. Will it?
kay:
think about it..
ya really want to make a buck..
with the sweat of another's
labor???
ken
Ken,your entire life is based on the sweat of other people's labor. Look around at all the stuff you own or use that was made by other people's labor. You couldn't have made all of that stuff if you had spent your entire life attempting it!
Alan MacDonald
Using the evasive, guileful, and even propagandistic phrase "nationalization" of the banks (or financial sector) is an extreme media disservice, distortion, and even deceit to the American people.
Instead of this fear/scare term 'nationalization' of banks, a truthful and truly democratic media would use the honest term, "democratization of the banking system".
The bottom line is that the banking system is now one of unchallenged, unelected, and ruthless EMPIRE, and it must be brought into the service of 'the people' under the control of our indivisible democracy --- just as every aspect of our political, social and economic lives, as free and voluntary members of a self-governing democracy entails of all spheres of our shared lives --- except for the separate and non-interfering sphere of religion, as defined in our Constitution.
A free and democratically representative Republic of self-governing people can not allow an uncontrolled Empire to exist within the economic heart of its Republic --- else Franklin's greatest concern will come true, "We have our Republic now, if we can keep it (from Empire)"
And beside, it really annoys the hell out of them when you beat their propagandistic heads in with a term that eviscerates their snarky PR.
paulk/11:33 - the key phrase: life insurance companies. guess who's gonna be the next bailout recipient? all you folks banking on life insurance policies, good luck.
kayaker, you're exactly right. it won't matter. just keep buying those stocks.
Congress should take back the authority to create money that was given by the Constitution! The Federal Reserve and the banks should be nationalized.
Private banks have been given the unconstitutional authority to create money out of thin air, whenever a loan is taken out, money that is backed by the "full faith of the United States Government." This unconstitutional authority allows private banks (including the private Federal Reserve) to amass great wealth and wield huge power, shaping national and world events. What we are seeing now, with the private banks, is the end of a 300-year Ponzi scheme, according to Brown, that is Fractional Reserve Lending, which depends on an infinite cycle of increased borrowing to fund the interest on the loans.
Federalizing the Fed and nationalizing the banks, modeled after a system supported by Benjamin Franklin in Pennsylvania, i.e., only allowing national banks to create money, backed by the "full faith of the US Govt," would put the power of money creation back in the hands of the people and allow the profit of banking (i.e., reaonsable and predictable interest on loans) to fund the government in lieu of an income tax.
I highly recommend reading Ellen Brown's, "Web of Debt." It's a well-documented explanation of the ominous roll private banks have played in the history of our country and the world. (See www.webofdebt.com.) Also, here is an excellent article by Ellen Brown, author of "Web of Debt."
SUSTAINABLE GOVERNMENT: BANKING FOR A “NEW” NEW DEAL
http://www.webofdebt.com/articles/newdeal.php
Confidence in the global banking system is pretty much dead.
http://www.gata.org/node/7178
oldcreditiste says; Ann T. You are right on the money. I am so happy when people show that they understand the money system for what it is. One point, however. All that is necessary is to nationalize the money creation, not all the banks.
Nationalization of all the banks would be impossible to sell to the people, who fear that they would thereby have all their money confiscated.
How can people be brought to see that the national debt is an interest bearing debt on what the 'Fed' and the member banks create out of thin air, and which would bear/cost no interest if the US treasury created the money in stead of borrowing it.
Raise the Cash Reserve Ratio to control the banks.
The MONEY SUPPLY should is a creation of the people. The increase of it [Stimulus], should be shared equally among all the people. Send every citizen $1,000. The poor will keep it circulating. The rich will deposit it in the banks and provide needed 'capital'.