Slouching Toward Nationalization?
I’m not typically fond of quoting conservative politicians, but I’m hoping that something Winston Churchill said will soon apply to our government’s hitherto lackluster response to the economic crisis: "You can always count on Americans to do the right thing – after they’ve tried everything else first."
Since former Treasury Secretary Henry Paulson made his first (and completely terrible) proposal to purchase banks’ bad mortgage-related assets last fall, the government’s strategy for dealing with the problem has followed a number of twists and turns as the economy continued to deteriorate, but everyone who knew anything agreed that nationalization – the dreaded first step down the road to "socialism" – would never happen. As President Obama has noted, that’s something that crazy radicals like the Swedes do. Not us. It just wouldn’t be proper.
But the Treasury Department’s TARP (the cheesy acronym for the government financial relief program), has shown itself to have some serious holes in it, and some form of nationalization – in whatever half-hearted, half-baked form it might take – seems increasingly likely as the losses continue to mount. The usual Keynesian suspects such as Paul Krugman and Dean Baker have been beating the drum for some time now, but even Alan Greenspan, the high priest of laissez-faire, recently came out in favor of temporary nationalization (but what would Ayn Rand say, Alan?)
I was skeptical at first that the Obama administration would move in this direction, as the president and his advisors have constantly stressed their distaste for this option in an attempt to calm down the markets, but it seems like they might be have to face reality after all, even though they really don’t want to. The government is discussing plans to take on voting shares in banking behemoth Citigroup, and in today’s New York Times, an anonymous administration official acknowledged that “given our involvement at this particular stage, there is an element, a possibility over time, that we will end up with some ownership of these institutions.”
The "stress tests" of likely insolvent banks that Treasury Secretary Tim Geithner included in his otherwise largely terrible bank recovery plan a couple of weeks ago will be key to any move towards nationalization. These tests will use computer models to determine whether or not the biggest 20 banks will be able to withstand Great Depression-like shocks that the government has characterized as unlikely. But as Paul Krugman has pointed out such supposedly "unlikely" scenarios such as a further 20 percent drop in house prices, are starting to look frighteningly possible. Today the Case-Shiller National Home Price Index reported an 18.2% drop in house prices over the last three quarters of 2008, and the trend is intensifying, not stabilizing. Stress testing of the banks might move from the virtual world to the real world sooner rather than later, and I hope the government draws the right conclusions from the results.
It will be interesting to see what President Obama has to say about nationalization in tonight’s speech to the nation. He and his advisors have shown an unfortunate preference for markets thus far in their economic policy, but the power of circumstances might force them to move in a new direction. Let’s use whatever capacity we have to give the zeitgeist a little shove.
Here’s a really good interview with Doug Henwood on the crisis that covers a lot of the same ground: http://www.minnpost.com/steveperry/2009/02/25/6951/we_just_dont_nationalize_things_here_doug_henwood_on_the_banks_and_more
cant believe they arent allowing vouchers, talk about a soft tyranny