Everybody’s thinking about it, but nobody is saying the dirty word that may point to a way out of the financial crisis. A simple, drastic, and shocking step is necessary to end the mind-reading game of “which banks are bankrupt” that is killing market confidence.
Am I talking about the Treasury Secretary’s new and complex plan announced last week? The $700 billion bailout that the Bush Administration shoved through Congress last year? No, I am talking about nationalization of the banking sector (at least the bankrupt banks) where the federal government takes over the banks, fires the executives, and replaces the management and re-starts lending while slowly disposing of bad assets.
Nationalization is a dirty word that the Obama Administration wants to avoid using, and it is probably due to the heavy bipartisan influence the financial sector exerts over the two party system. The Clintonites (heavily overrepresented in his Cabinet) are moderates/neoliberal over-educated “smart guys” like Timothy Geithner who never thought outside of their Ivy League box of peers. They still cling to economic orthodoxies about the wisdom of the private sector in this uncharted era of financial panic. And they seem to identify more with Wall Street (see my post about former Clinton official and now ex-Citibank executive Rick Rubin) than with the taxpayers they are allegedly protecting.
Take the case of Citigroup. This house that the Clinton Democrats made is politically well-connected but economically is too large and has too many holdings to make any business sense. Given its odious ethical history as a former Enron bank and predatory lender, no one should cry over its death. But bankruptcy for a mega-bank “too big to fail” would cause a global disruption for its creditors and clients. And since no company has the finances to take it over, the cleanest solution would be for it to be for the federal government to take it over and break it up piece by piece, division by division. Instead, Citigroup is leaning on the Treasury for $20 billion if we guarantee $300 billion in troubled assets in return for a small percentage of stock. The same idiots are in charge and every new month asking for more, and we still are avoiding the day of reckoning when we open those opaque books and see how really, truly bad their finances are. This taxpayer “cash for trash [assets]” plan rewards bad management and brings investment without ownership or control.
To hell with that. The unorthodox thinkers who foresaw this crash coming all seem to agree that nationalization of the banks is unavoidable (see links below) including the most prescient economist, Nouriel Roubini at NYU. The orthodoxy of the “smartest guys in the room” isn’t what brought us relativity, natural selection, or Keynesianism. Let’s bite the bullet and get this drama over with.
Nouriel Roubini – “Nationalize Insolvent Banks”
Portfolio – “Where’s the nationalization debate?”
How the World Works – ” A cure for Wall Stree: a dose of socialism”
Alternet.org – “Interview with Dean Baker” (an economist who got it right)
Fortune – “UT Professor James Kenneth Galbraith on the crash”
TIME – “25 people to Blame for the Financial Crisis” (#1 is Sen. Phil Gramm)