The Nationalization Option

You might think that having anted up $173 billion
of our own money, we taxpayers would have some leverage at AIG, now
that we own 80 percent of the shares. You might think that when chief
executive Edward Liddy, a holdover appointee of Hank Paulson's, told
Treasury Secretary Tim Geithner that he had just mailed $165 million of
our money as bonuses
to the geniuses at the firm's financial products unit -- who probably
did more on a per-banker basis to destroy global capitalism than any
other kindred group -- that Geithner, upon hearing this news, would
have responded, "Liddy, you're fired."

But Geithner's indulgence of bankers' indulgences is fast becoming
the Obama administration's Achilles' heel. The AIG debacle is the
latest in a series of bewildering Geithner decisions that threaten to
undermine the administration's efforts to restart the economy. So long
as it's Be Kind to Bankers Week at Treasury -- and we've had eight
straight such weeks since the president was inaugurated -- American
banking, and the economy it is supposed to serve, will remain
paralyzed. The Geithner plan to restart the banks provides huge
taxpayer subsidies to hedge funds, investment banks and private equity
companies to buy the banks' toxic assets without really having to
assume the risk. That's right -- the same Wall Street wizards who got
us into this mess, using the same securitization techniques that built
mountains of debt within a shadow financial system that remains
unregulated, are the saviors whom Geithner has anointed to extricate us
-- with our capital, not theirs -- from the mess that they created.

A more plausible solution would be for the government to assume
control of those banks that are insolvent, as it routinely does when
banks go under. It could then install new management, wipe out the
shareholders, take the devalued assets off the banks' books, restart
lending and restore the banks to private control at a modest profit for
the taxpayers. There may be reasons that Geithner's plan makes more
sense than this one, but if they exist, Geithner has failed to explain

It's certainly not because Americans are dead set against bank nationalization: A Newsweek poll this month found that 56 percent of respondents supported it. Hell, Alan Greenspan supports it.
But Geithner seems unable to imagine a banking system not run by its
current leaders or owned by its current shareholders or engaged in the
same arcane securitization practices that led to its collapse. An
administration that is busily creating alternatives to our health-care
system and our energy policies is being dragged down by a Treasury
secretary who cannot conceive of an alternative to our catastrophic
system of banking.

Fortunately, Geithner is not the only public servant grappling with
banking's daily outrages. In the Senate, Vermont's Bernie Sanders,
joined by Illinois' Dick Durbin, has introduced a bill to cap the
interest rates on credit cards. Even as banks are borrowing funds from
the Fed interest-free and are counting on taxpayer largess to keep them
from going bust, they are still charging usurious rates of interest. In
2007, the Demos Foundation found
that one-third of credit card holders were paying rates in excess of 20
percent, in some cases as high as 41 percent, and the rates have not
dropped notably since then.

Once, states were able to regulate their banks' rates, but in 1978 the Supreme Court ruled
that banks operating nationwide could charge whatever they wished if
they moved their operations to states that had no usury laws, such as
South Dakota. Shortly thereafter, Citigroup moved its credit card
headquarters to South Dakota, and, as we know, Americans began
funneling more and more of their money to the banks. Sanders's bill would cap interest rates at 15 percent, which is the same rate cap that Congress set 30 years ago for federal credit unions.

In 1991, New York Republican Alphonse D'Amato authored a bill
to cap credit card rates at 14 percent. It passed the Senate 74 to 19,
but died in the House. Today, as populist rage at the banks rises,
Congress and the administration should be racing to pass the Sanders

Sanders and Durbin have two things that Tim Geithner sorely lacks: a
capacity to envision a less predatory, more salutary form of banking
and a determination to enact such reforms. No one expects Tim Geithner
to become a born-again populist, but is it asking too much of him that
he come up with a plan that doesn't throw our money at the same bankers
engaged in the same old practices that brought us to this pass? Is it
too much to ask that he nationalize the insolvent banks and stop
shoring up a bankrupt system?

Join Us: News for people demanding a better world

Common Dreams is powered by optimists who believe in the power of informed and engaged citizens to ignite and enact change to make the world a better place.

We're hundreds of thousands strong, but every single supporter makes the difference.

Your contribution supports this bold media model—free, independent, and dedicated to reporting the facts every day. Stand with us in the fight for economic equality, social justice, human rights, and a more sustainable future. As a people-powered nonprofit news outlet, we cover the issues the corporate media never will. Join with us today!

© 2023 Washington Post