“Of course, we should just nationalize.”

Simon Johnson provides a viewer’s guide to Geithner’s speech.  My favorite paragraph:

I’ve talked over the past few days with people with extensive financial market experience, with journalists who’ve covered every angle of this story, and with academics who think about these issues all day and night.  And I’ve had remarkably similar conversations with each.  After a short warm up on the depth of our predicament and the excess of our bankers, the person looks at me and says: “of course, we should just nationalize.”

I am a lifelong free market fan, borderline crackpot in fact…  And even I would accept nationalizing the banks at this point.

Update

Yves Smith does a nice job of unloading again.

But the history of major banking crises unambiguously shows that insolvent financial institutions need to be resolved. There are variations on the theme: the government can take them over and recapitalize them, clean them up and re-sell them, a la Sweden; you can wipe out equity investors and bondholders; you can try new twists, like various good bank proposals that have surfaced lately (making new entities out of the deposits and good assets and leaving the dreck with the existing bond and shareholders). While there would be many important details to be sorted out, this is not path breaking, except in the scale at which it needs to occur. And now, having had four actute phases of a credit crunch, the Fed and other central banks have plenty of liquidity facilites ready to deal with any initial overreaction. Rest assured, although radical measures would not be pleasant or easy, there are plenty of models and precedents.

3 comments to “Of course, we should just nationalize.”

  • bacteria

    Rep. Kanjorski: $550 Billion Disappeared in “Electronic Run On the Banks”

    http://www.liveleak.com/view?i=ca2_1234032281

    At 2 minutes, 20 seconds into this C-Span video clip, Rep. Paul Kanjorski of Pennsylvania explains how the Federal Reserve told Congress members about a “tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars.” According to Kanjorski, this electronic transfer occured over the period of an hour or two.

  • snoopy

    bacteria, not sure i understand what that means. can you elaborate in layman’s terms?

  • bacteria

    People were taking their money from banks, so banks were in big trouble – banks have not enough liquidity on their accounts. Banks have only small portion of savings “in cash”. Because for banks, to hold cash (or liquidity) is not profitable, so they have to sell another assets (with longer time horizon) to satisfy customers demand for their money.

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