President Obama has come out against nationalizing banks as a means of dealing with the looming insolvency crisis in the financial industry. His stated reasons seem vague, “America is different, We want to retain a strong sense that private capital is fulfilling the core investment needs of this country” he said. (Referring to a question about Sweden who nationalized their banks) Given the escalating nature of the global financial crisis I wonder if the President may have a different opinion now on nationalization.
I think that he should at the very least remain open minded about the possibility of having to nationalize given the nature and severity of the deepening crisis. In any case, if government were to take over failing banks it should be done as a temporary measure lasting only as long as necessary to fix the problems and get rid of deadwood bosses and managers before the banks are returned to private sector operation again.
A recent article by economist Nouriel Roubini has rejuvenated the debate about whether the government should take over troubled banks. On ABC This Week today two Republicans, Senator Lindsay Graham and Representative Peter King even admitted that given the severity of the problem it should be an option that the President could use. The statement by the two Republicans almost gave Representative Maxine Waters, also a guest on the show, a heart attack since it was coming from Republicans. It seems like just a few days ago that these same Republicans were ranting on about the evils of Socialism and government interference in the private sector. So go figure.
Maybe this is why Obama has been hesitant to use this option, namely because of the ideological and political opposition problems he thinks it would create trying to sell it to the Republicans and the extreme right wing. The bottom line is that there are more good reasons to do it then to end up with a bunch of half measures that may not get the job done. The President may not get a do over if his strategy is not bold given the catastrophic he is facing.
Chief among these problems is the fact that many of the same Wall Street CEO’s that brought about the crisis in the first place remain in power and why would you give billions in bailout funds to them now since they have demonstrated they apparently don’t know what they are doing. Nationalization should eliminate these compromised individuals from the situation and would also represent a clean and transparent start for the banks with new people running the show.
Last week we had the rather theatrical display of bankers being parade before Congress to be brow beaten for paying themselves inflated bonuses and mismanagement. As a friend of mine pointed out, the same thing was done in Scotland with their bankers except that all of them had already been fired from their jobs as heads of the banks by the time they appeared before a government commission. So entrenched are the CEO's here that they can't be fired even when it's obvious that they are incompetent or able to keep their bank solvent.
Senator Chuck Schumer, who also appeared on the show, not surprisingly was the only panelist who came out against the idea. “I don't think government is good at making these decisions”. Schumer the New York Senator certainly is representing by this statement the interest more of the bankers he represents on Wall Street, than what may be good for the country. Which is at the root of the political problem when it comes to opposition to nationalizing the banks. Most members of Congress, on both sides of the isle, as well as many presidential advisers, are beholden to the Banks and Financial institutions because of the political contributions they have received, or their long term personal working relationship with Wall Street. The Treasury Secretary Tim Geithner is a prime example of someone who represents the latter.
So is Obama getting good advise? Maybe not. My hope is that he is not so insulated by the political culture in Washington that the idea of nationalizing the banks is completely off the table. Because in the end it may be the best strategy and exactly what’s needed to really fix the crisis.