Simon Johnson, the economist who worked at the IMF, said he heard practical arguments against nationalization in every country he went into, and yet he feels sure there are ways to deal with all of the potential problems, re: timing, staffing etc. He said it might be possible, for example, for the government to hold onto the banks for just a few hours before turning each of them back over to private investors.
Simon Johnson continues: I'm sure that all the reasons for being apprehensive are sensible, but let me speak as if I were the IMF, acting on the behalf of, and with the support of, the U.S. government in the 1990's. What I would say is, stop the whining. You know it's got to be done. Just do it. The longer you wait, the more you prevaricate, . . the more it's going to cost you. This is the U.S. government we're talking about. These people, when they get organized, when they get focused, they get things done. This is the greatest country ever on the face of the earth. We have plenty of talent, there is no shortage of brainpower. Just do it.
Now you might have noticed that the government isn't doing either of these options. Instead, they're doing sort of halfway versions of both.
To wit:
The government has not committed to buying up all the toxic assets, from banks, at something closer to their full price. But they have created a new trial program that allows the government to help subsidize private investors, who, they hope, will buy a lot of these assets. And when it comes to this second option, the government is not forcing banks to sell their assets, or value them at what they could get on the market right now (i.e. mark to market).
Nor is the government taking over the banks, i.e. they aren't nationalizing them. In fact the government has gone out of its way to give banks money without taking control. They've given the banks over $240 billion, including $45 billion to Citibank alone. But the government structured the deal in a special way, specifically designed so it was not a nationalization. And recently, when Citibank's troubles got worse, the government had to go through these amazing contortions to help the bank without becoming its owner. All of them, from President Bush and Henry Paulson, to President Obama and Tim Geithner and Ben Bernanke, they all say the same thing: They don't want the government owning banks. Not even briefly.
Some people wonder if the government couldn't just let the banking system sort things out on its own. If banks made bad bets, then they should go out of business. It's not our problem.
However, the Federal Reserve Chairman, Ben Bernanke, dismissed this option when he told Congress in a private briefing, it actually is our problem. He was quoted as saying, "If we let the banking system fail, no one will talk about the Great Depression anymore, because this will be so much worse." It seems that a functioning economy desperately needs functional banks, which, Columbia Business School Professor David Beim says, is why governments always protect them.
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