Last Friday, Senate Banking Committee chairman Christopher Dodd said banks may have to be nationalized for "a short time" to help lenders survive the economic slump. The statement, which followed Alan Greenspan's similar remarks, set off a round of debate about the pros and cons of nationalization, and although the Obama administration has said it doesn’t want to nationalize U.S. banks, their announced decision to swap their preferred shares for voting shares in Citigroup indicates that some nationalization — or some mutation thereof? — is inevitable.
So how does everyone feel about this? On the one hand, it makes total sense: Over six months and billions of dollars, it's become pretty clear that banks like Citigroup have more than a temporary liquidity problem — they are essentially insolvent, not to mention feckless, and who doesn't want to see someone seizing hold of their books and selling off their damn jets for them? But on the other hand, the idea of government-run banks is kind of creepy and Soviet, and is it even efficient to have lumbering bureaucracy in charge of the banks? For instance: Is anyone happy with how the DMV is run?
Here's a sampling of the chatter out there in the world today:
• Paul Krugman wrote today that nationalization is "as American as apple pie." The government is wasting time and money sinking billions into "zombie banks" that are essentially insolvent, he says, and we essentially own them anyway. "Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout," he writes. "And if it’s basically putting up all the money, the government should get ownership in return." [NYT]
• Analyst Richard Bove is dark, as is his way, about the idea. "Nationalization would not only cause millions of Americans to lose trillions of dollars, it would impose a system on the U.S. economy that would destroy its ability to recover for decades," he told Reuters today. [Reuters]
• Adam Posen, the director of D.C.'s Peterson Institute for International Economics, is less gloom-and-doom: "Nationalization is a very unpopular word, but like most taboo words, when you look at the reality behind it, it isn’t quite so scary. The key is that government control is temporary, with sell offs of distressed assets and viable bank units back to the private sector to commence as soon as possible, some of which can begin almost immediately," he wrote today, adding, "No one in their right mind wants the US or any government owning banks for any longer than absolutely necessary." [Adam S. Posen]
• Especially Charles Schumer: "The government is not good at making these decisions and managing assets in general," the New York senator said last week, calling the move "the last arrow in the quiver," and adding, with trademark frankness: "The government bureaucrats make for bad bankers and you'd probably end up making it worse." [HuffPo]
• New York governor David Paterson is skeptical, on the other hand, but thinks while it's not something anyone wants to do, it may be something we have to do. "I would compare it to taking antibiotics, which would probably kill you if you took them everyday," he told the Huffington Post today. "But you take them when you are sick. And our country is in a massive downturn amid a global decline that is probably even greater than the United States' situation. ... there are a lot of pills we have to swallow and that is one to be considered." [HuffPo]
• Doug Roberts at BloggingStocks also points out that temporary is the key word here, and brushes aside talk of our impending socialist doom. During the mid-eighties, under the Reagan administration, he recalls, the FDIC effectively nationalized Continental Illinois, then the seventh-largest bank in the country, and sold it several years later. "The Gipper was called many things, but a socialist was never one of them," he finishes. "If he could do it, why can't we do it today?" [BloggingStocks]
• Even Nouriel Roubini thinks there's no other way: "Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume," Dr. Doom wrote in a Washington Post op-ed a few weeks ago. (Don't worry, he wasn't wholly positive.) "Of course, the economy would still stink, but the death spiral we are in would end." [WP]