Nationalizing the Banks Seems Inevitable: How Bad Does It Have to Get First?
Belief:
Atheists, It's Time to Stand Up to Jesus
Russell Blackford, Udo Schuklenk
Corporate Accountability and WorkPlace:
As Foreclosure Nightmares Increase, Will More Homeowners Pay Off Their Bankers in Violence?
Scott Thill
DrugReporter:
Lies About Marijuana Drive People to a Much More Harmful Drug -- Booze
Steve Fox
Environment:
Why We Need Bees and More People Becoming Organic Beekeepers
Makenna Goodman
Food:
Despite Censorship By Beef Magnate, Michael Pollan Spreads Message About the Real Price of Cheap Food
Health and Wellness:
New York May Stop Heartless Health Insurers from Dropping Coverage When It Stops Being Profitable
William Ehart
Immigration:
NYC Marathon Raises Question of Who Is American Enough?
James E. Johnson, Jr.
Media and Technology:
Focusing on Fort Hood Killer's Beliefs Is an Easy Out to Avoid the Deeper Reasons for the Massacre
Mark Ames
Movie Mix:
The Yes Men: Pranksters Out to Fix the World
Mark Engler
Politics:
What Michelle and Barack's Marriage Has in Common with 56 Million Other Ones
Annabelle Gurwitch
Reproductive Justice and Gender:
Fetus-Shaped Potatoes? Going Undercover Inside the Weird World of Right-Wing Abortion Foes
Ann Neumann
Rights and Liberties:
"My Kids Want to Hide Their Identity; They're Scared Someone Will Attack Us": U.S. Muslims Being Targeted
Jaisal Noor
Sex and Relationships:
Instant Sex: Has the Digital Age Destroyed Relationships or Made Them Better?
Vanessa Richmond
Take Action:
G-20 Meetings: Nothing Much Happened in the Suites, and There Was Too Much Punch in the Streets
Laura Flanders
Water:
Why Natural Gas Is Not a Clean Energy Panacea
Stan Cox
World:
With Unemployment at 40 Percent, Afghan Teens Enlist in Army, Police
Lal Aqa Sherin
There is a bottom-line to the banking crisis which the Obama administration appears intent on trying to avoid: some number of financial giants are simply insolvent. A recent analysis by NYU economist Nouriel Roubini -- known as "Doctor Doom" for his dire predictions about the collapse of the financial trading system, predictions that have since become painfully true -- estimated that the losses facing the American financial sector will reach $3.6 trillion dollars.
In the past, governments, including that of the first Bush administration during the savings and loans failures of the late 1980s, have taken over insolvent institutions that were judged to be "too big to fail." They fired most of the management teams, wiped out the banks' shareholders, protected depositors, and sold off the institutions assets in an orderly way, minimizing the shock to the larger economy.
Following the floundering, piece-meal interventions presided over by former Treasury Secretary Hank Paulson, the chorus calling for nationalization has grown. Once considered a radical move, even fiscal conservatives like Senator Lindsey Graham (R-SC), have suggested that this might be the least-expensive route to saving a financial system on the brink of collapse. On ABC's This Week, Graham said, "This idea of nationalizing banks is not comfortable. But I think we've got so many toxic assets spread throughout the banking and financial community, throughout the world, that we're going to have to do something that no one ever envisioned a year ago." "I would not take off [the table] the idea of nationalizing the banks," he concluded.
But so far, the Obama administration has done exactly that, and while the president has said that his team is loathe to nationalize falling financial giants because of the complexities involved, a closer look suggests that his team is avoiding the move on ideological grounds rather than practical considerations. The New York Times reports, "President Obama's top aides have steered clear of the word entirely," and the Washington Post notes, "Administration officials are … trying to offer federal assistance to financial firms without nationalizing them outright, according to a source who has been in contact with senior Treasury officials." Obama's Treasury Secretary, Tim Geithner, told reporters, "We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."
But they may not end up having a choice. Contrary to Graham's assertion, many of the "toxic assets" we're hearing so much about these days are concentrated in a handful of institutions, and the first step of the plan outlined last week -- with sparse details -- by Geithner is to dig into these institutions' books and see exactly how healthy or unhealthy they really are. Some see that as a first step to nationalization, even if it were to go by another name -- "restructuring" or "receivership."
But the painful but unavoidable reality of the financial crisis is that every dollar spent trying to prop up a failing bank is just good money thrown after bad; a taxpayer rip-off, short and sweet. Geithner is proposing a vague "public-private partnership" that will somehow raise enough capital to ease the crunch. Roubini argues that "the plan won't solve our financial woes, because it assumes that the system is solvent." Economist Paul Krugman wrote that the political establishment has "become devotees of a new kind of voodoo [economics]: the belief that by performing elaborate financial rituals we can keep dead banks walking." Goldman Sachs' economists estimate that those rituals might cost up to $4 trillion to perform.
See more stories tagged with: financial crisis, nationalization
Joshua Holland is an editor and senior writer at AlterNet.
Liked this story? Get top stories in your inbox each week from AlterNet! Sign up now »
Support AlterNet
Do you value the information you're getting from AlterNet? Please show your support with a tax-deductible donation.
Feedback
Tell us how we're doing.