Tuesday, March 03, 2009

POLITICS - The Nationalize Question

"To Nationalize or Not To Nationalize..." Bill Moyers Journal

In this week’s edition of the JOURNAL, Bill Moyers spoke with economist Robert Johnson about the precarious state of many banks in the U.S. and across the world. Johnson suggested that President Obama should take tough action on failing banks:

"People talk about nationalization – I just call it restructuring. Restructuring is part of capitalism. That’s how the airlines get restructured when they go through bankruptcy, or how you deal with the auto industry, how you deal with venture capital projects. Do the same thing with the banks... I think the notion of ‘nationalization’ has been a little bit of a PR spin. Restructuring is what you do in capitalist economies to maintain function and continuity. Nationalization evokes the specter of the state seizing the means of production, like Che Guevera is about to take over or something... The government just becomes the stockholder until such time that they sell the stock back to the market and get paid back a little bit for all the lost support that they’re creating for these banks."

William M. Isaac was head of the Federal Deposit Insurance Corporation during the banking crisis of the 1980s, when it nationalized Continental Illinois Bank, which was then the nation’s seventh-largest. In a column for the WALL STREET JOURNAL, Isaac argued against nationalization:

"Any bank we nationalize will be forced, both by regulators and the marketplace, to shrink dramatically... What’s more, we won’t be able to stop at nationalizing one or two banks. If we start down that path, the short sellers and other speculators that the Securities and Exchange Commission still refuses to re-regulate will target for destruction one after another of our largest banks... For nationalization to work there needs to be a reasonable exit strategy... Today, who has the wherewithal, legal authority, and desire to purchase our largest banks? No one comes to mind, particularly if we rule out foreign powers, which I suspect would not pass muster due to national security concerns about ceding that much power over our economy to foreign powers... Who will run these companies when we dismiss the existing senior managers and board members? We had significant difficulties attracting quality people to Continental even without today’s limits on compensation."

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