TechTicker: Nationalize banks

Excellent article over at Yahoo.com by Aaron Task. Excellent interview. I should have read up after juha talked about outrage at Thain actions at Merrill. Basically shelling out $15B of taxpayer money in bonuses. Just sad.

Key issue, as stated in the entry below is that banks are not lending, and hoarding capital, when not stuffing it in their pockets as in Merrill.

Key quote from the video:

The new administration is tiptoeing around the N word, like it will bring about communism in this country. It is time we cut through the chase, we are nationalizing banks and should do it wholesale to clean up the system.

Amen brother!

Comments

Anonymous said…
Marc, what makes you think politicians will do it better? There are other problems with state ownership. I am going to have to go with Hugo Dixon, editor at breakingviews.com, on this, with reference to the UK market:

"The markets are terrified that bank shareholders are about to be expropriated. But the government does not want nationalisation – nor is it desirable or even likely.

Lord Myners, the City minister, made clear his view that he was opposed to nationalisation in an article in the FT. Others in government rightly point out two big problems with 100% state ownership. First, the implicit guarantee currently provided by the government to the banks’ liabilities would become an explicit one. That would probably cause even more jitters in international capital markets. The second is that, if the state owned all of a bank’s equity, ministers would come under huge pressure to direct loans to favoured companies and industries. Politicians allocating capital under lobbying pressure would make an even bigger hash of things than private banks.

Even if the state needs to inject more capital into the banks, that doesn’t imply 100% ownership. Take Royal Bank of Scotland, currently 70% state-owned. Pop in some more ordinary equity and the state’s stake might rise to 80% or even 95%. But there is a significant difference between an independent bank, whose directors legally have to protect even a tiny minority of outside shareholders, and 100% state ownership. Ministers are right to hold that line if they can."

Banks should be able to start lending again without nationalisation. That should be an absolute last resort.
Roy Russo said…
The failure in the hand-outs was executing them with no strings attached... So they horde cash, like you, like me, and everyone else. The GM/Ford hand-outs had strings, big ones, and it was a pittance compared to TARP.

Fiona is right about one thing... nationalizing banks makes it easier for people to vote themselves money, but then again, we already have that via lobbyists.
adt43wt342 said…
Hello Fiona,

You are right, I don't believe politicians will do better in allocating resources, in fact worse because it is central planning.

However public money and public accountability is what is needed, in a Keynesian way, to get the credit markets flowing. Lender of last resort is the new Keynes as opposed to spender of last resort.

The theme that emerges over and over is management and accountability of management to the capital holders. When you look at Merrill it is easy to get sick in your stomach over their use of the bailout money to pay out bonuses. As a minimum the money should be gotten back, every cent. I would argue to press for criminal charges against Thain on the basis of "embezzlement" just to wipe that white dough boy smile off his face.

I read your article in "El Pais" again and I agree that Spanish govt intervention in allocation of money is a disgrace. I believe like Roy and you that politicians will always be crooked, regardless of party association. Most of them are short-sighted crooks.

Allocation of capital resources, via debt, should be left to the invisible hand and decentralized.

Again, compensation structures and lack of accountability and transparency in public companies has made this mess we are in.

When the incentive was to leverage up, setting monetary levels independently of central banking and taxing the flows via fees to pay bonuses, the pigs fed and fed and fed... until they died.

Now that the beast is mortally wounded, management doesn't care, they made their money, they retire, you lost your retirement. This is a mortal blow to the trust foundation that capitalism needs to function.

Not only do we need strong oversight, outright banning of synthetic CDOs (CDO^2) or shorts on CDS extracted from CDO and anything that demultiplies the impact of bad debt on capital etc etc, but the role of lender of last resort is becoming a clear need.

Execution is going to be difficult because allocation of resources needs to be done at arms length and politicians will muck it up. In that sense nationalization, even if temporary (which it would certainly be in the US) seems like the most effective way to get this done from a operations standpoint.

The french example of the SFEF may not be a bad one: it keeps the charade going, on the surface of it they are "independent" but in reality the capital is public.

At the end of the day, you guys can waive your arms all you want, if capital has dried up, which it has, then public capital needs to step in.

This is modern Keynes 101. TARP is already an example of public debt replacing private debt.

If the capital is public why isn't the ownership public? oversight and keeping the politicos at bay (it is not THEIR money) is a legislative and operative issue. The fundamental one.

No capital without participation. Period. Nationalization means public capital in that case.

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