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Indeed, for all the money that the government is (or would be) paying for the insolvent banks’ toxic assets, taxpayers could actually own those banks if they are let to be priced according to realistic market values, which are bound to be only a small fraction of their inflated book values.
For example, in exchange for the $20 billion bailout money that the Citigroup received on November 23rd, 2008, the government/taxpayers could technically take the possession of the bank since its net market worth at the time was estimated to be only equal to $20.5 billion—down from $255 billion in mid 2007 [8].
But Citigroup has received much more than $20 billion of taxpayers’ money. The $20 billion injection was in addition to the $25 billion the company had received the month before (October 2008) under the Troubled Asset Relief Program (TARP). More importantly, at the same time that Citigroup received the $20 billion injection, it also “received $306 billion of US government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week” [9].
Obviously, this means that, while Citigroup’s ownership remains legally in the existing private hands, taxpayers have, in fact, paid for the company’s net market value of $20.5 billion 17 times over with the $351 billion paid (or committed to pay) to date (351 = 20 + 25 + 306).
With varying degrees, what is true in the case of Citigroup is also true in the case of a number of other mega banks. For example, Bank of America has received $45 billion cash and $118 billion worth of guarantees against bad assets. Yet, its market value as of January 20th, 2009, was estimated to be only $33 billion—down from $228 billion in mid-2007 [10] This means that, like the case of Citigroup, taxpayers have purchased (paid for) Bank of America many times over.
That the ownership of these banks remains, nonetheless, in the existing private hands is indicative of the fact that government policy makers are more committed to the interests of Wall Street gamblers than those of taxpayers.
In the absence of corrupt, incestuous Wall Street-government relationship (including the new, Obama administration), nationalization of insolvent financial institutions is not as complicated or difficult as it sounds. It is certainly easier than public ownership and management of manufacturing enterprises that require much more than record keeping and following regulatory or legal guidelines. “Nationalizing the banks sounds more radical than it is, since banking law already empowers regulators to impose extraordinary controls and close supervision over troubled institutions” [11].
The idea of nationalizing banks under conditions of a financial meltdown is not necessarily socialistic or ideological. It has, indeed, been occasionally used to deliver capitalism from its own systemic sins. Thus, in the face of the Great Depression of the 1930s, and following the Hoover administration’s failed policy of trying to bailout the insolvent banks, the FDR administration was compelled to declare a “bank holiday” in 1933, pull the plug on the terminally-ill banks and (temporarily) take control of the entire financial system.
Likewise, in the face of the collapse of its banking system in early 1992, the Swedish state assumed ownership and control of all the insolvent banks in an effort to revive its financial system and prevent it from bringing down its entire economy. While this wiped out the existing shareholders, it turned out to be a good deal for taxpayers: not only did it avoid costly redistributive bailouts in favor of the insolvent banks, it also brought taxpayers some benefits once banks returned to profitability.
Both in Sweden and the United States once profitibility was returned to insolvent banks (following policies of nationalization), their ownership was once again returned to private hands! It is perhaps this kind of government commitment to powerful financial-corporate interests that has prompted a number of critics to argue that one definition of capitalism is that it is a system of socializing losses and privatizing profits [12].
This is, indeed, a classical political economy argument, maintaining that “in the advanced capitalist societies, what actually happens is that state policies assure that more resources flow to the rich than to the poor. . . . The term corporate welfare is widely used to describe the bestowal of favorable treatment to particular corporations by the government. One of the most commonly raised forms of criticism are statements that the capitalist political economy toward large corporations allows them to ‘privatize profits and socialize losses’,” [13].
Few governments in the world have been so utterly under the influence of corporate-financial interests as in the United States. According to the Government Accountability Office (GAO), two-thirds of corporations in America paid no federal income taxes at all between 1998 and 2005. This includes a fourth of all large US companies (those with assets worth of $250 million or more). An earlier GAO report showed that 61 per cent of US corporations paid no federal income taxes between 1996 and 2000—a period of high growth and huge corporate profits [14].
After reviewing these and similar statistics, which indicate a steady redistribution of national resources from the bottom up since the early 1980s, P. Sainath, author of Everybody Loves a Good Drought, wrote: “There's 'corporate governance' for you—they simply run the country. Administrations exist. Corporations govern” [15].
There are strong indications that Barack Obama’s administration is no exception to this pattern—all the promises of change and elevated hopes notwithstanding. Of course, this is not to deny the truly historic importance of his election, an event or victory that should be celebrated as such.
Nor is it meant to deny or downplay the importance of a number of reforms he was elected to bring about. These would include improvements in largely non-economic (or non-class) issues and areas such as civil liberties, the environment, regulatory issues, race relations, diplomatic protocols, and so on—areas that would rehabilitate some of the excesses and damages done by George W. Bush without burdening powerful financial-corporate interests.
Obama’s changes, however, would not include some of the more fundamental economic or class issues such as reversing or stopping the costly bailout giveaways to Wall Street gamblers and nationalizing the insolvent banks, downsizing the military establishment and reallocating part of the military to non-military public spending, implementing an affordable universal healthcare program, reversing the excessive neoliberal tax cuts for the wealthy, and the like.
