UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

February 17, 2009

BANK NATIONALIZATION ATTRACTS OBAMA, GOP, ECONOMISTS

Financial Times - Long regarded in the US as a folly of Europeans, nationalization is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalizing banks are Republicans.

Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be "on the table".

Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received. . .

Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the "Swedish model" – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. "In limited circumstances the Swedish model makes sense for the US," says Mr Graham.

Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

"They [the Japanese] sort of papered things over," Mr Obama said. "They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time."

Administration officials acknowledge that the rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalization of some weak banks.

The plan sets out a framework for revealing the extent of the likely credit losses facing banks. Most private sector analysts believe the exercise will reveal that some banks have large capital shortfalls.

Policymakers acknowledge that if this is indeed the case, it will be difficult for those with the largest shortfalls to raise the required equity from the markets, in which case the government would probably have to take temporary control. Moreover, while nationalization remains taboo in some political circles it is increasingly openly discussed among past and present economic policymakers of all leanings.

2 Comments:

Anonymous Anonymous said...

Now that the bankers have taken all the money from the treasury and ran, the treasury will assume the banks debts.

February 18, 2009 8:50 AM  
Anonymous Anonymous said...

The Feds lost money running a whore house in Nevada. Maybe they'll have better luck running the banks.

http://www.foxnews.com/story/0,2933,292166,00.html

February 22, 2009 3:23 PM  

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