Nationalizing Banks: Up Remains Down as Greenspan Chimes In
I noted yesterday my evolving fascination with the increasingly counter-intuitive nature of the debate over nationalizing U.S. banks — in particular, the openness to this option expressed by a prominent Senate Republican and the outright endorsement of it by two free-market economists.
And now we learn that former Fed Chairman Alan Greenspan has added fuel to the fire:
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
I expect this news will further destabilize the apoplectic commenters on my post yesterday, prompting them to offer additional unequivocal denunciations of the idea. I wonder, however, if they’ll finally drop from their denunciations the assignment of the idea to “lefties,” and recognize that, this time around, it’s a growing number of “righties” who are pushing the concept.
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One additional, albeit tangential note on this debate:
James Surowiecki (to whom I also linked yesterday) argues that we shouldn’t rush to nationalization despite the historic precedents from Sweden and Japan. As I recall, his argument hinges on the (at least partial) irrelevance of that history to our current situation.
It’s an argument worth discussing; however, what struck me about the argument was not its merit but its echo, namely: The argument by many conservatives today that history (primarily New Deal history) “proves” that the stimulus/recovery bill signed into law yesterday will fail/not produce the results Obama and Congressional Dems claim it will produce.
But if Surowiecki’s point is valid — i.e., that we should not over-rely on history to endorse the merits of nationalizing banks — it seems equally valid to suggest we should not over-rely on history to dismiss the potential merits of the current stimulus plan.
As on other subjects where I lack expertise, I don’t have definitive answers on this one, only questions that I think we should be asking and discussing in an intelligent, calm, reasonable manner, rather than hurling partisan bromides at each other.
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6 Responses to “Nationalizing Banks: Up Remains Down as Greenspan Chimes In”
Financial Times: Greenspan and Other Free Marketeers Favor Nationalization of Banks (or “Some Banks”)
by Damozel | Not that that’s a bad thing. It does show the posturing up for what it is, of course — not to mention the madness of Michele Balkin. One wishes they’d got there sooner, of course. The Financial Times says:Long regarded in the US as a f…
As a non-apoplectic poster, then and now, who has read Greenspan's remarks already,
http://online.wsj.com/public/resources/document…
I still say caution is advised, not only in any decision to nationalize (which should normally be avoided), but with respect to the scope and extent and objectives related to this decision. Will this be a full ownership-and-operation converted-to-public project? What else may (and should not) be attempted related to this, anything and everything related to banking, finance, et cetera? (It's like nationalizing the Detroit automakers and making them not only the experimental lab for politically-favored environmentalist-style projects, but reaching out from there vaguely and broadly and alarmingly into all kinds of related issues like energy policy.) What kind of takeover and future for the banks is foreseen? What other related policy goals, no matter how distant or “bold”? How long would nationalization last? Et cetera.
DLS — good points, good questions.
Thanks, Pete. [smile, salute]
I still find it of interest that the savings and loan (S&L) lessons aren't being reviewed or even mentioned much, if at all, these days.
And don't forget, over the horizon is the industrial-strength last-resort measures (some of which we'll likely see, anyway, for other political and economic reasons someday) like monetizing the debt and otherwise generating inflation in order to counter if not to prevent deflation. That, and the “carry tax” or the equivalent now, inducing spending by deliberately diminishing the value of currency (or later, other wealth held) with time.
But that's over the horizon. (We're just aware that it's there and may be brought to bear on our economy, and on us, someday.)
In the meantime, we shall see what happens — with banks (and the currency), with homeowners, with Detroit, with energy in this country…
This is a core issue. Not applying lessons learned from the S&L crisis (which schematically, looks like similar issues were driving similar banking behavior) would be a mistake. But having Greenspan opine favorably hopefully makes it less scary for the more timid. My concern is that if the entrenched opposition succeeds in devaluing the merits of the plan, then its effectiveness will be impaired (See Phelps's work and Lucas's work on the role of expectations in economic behavior). The Obama program needs to work. And it needs Obama to “own” it more forcefully than was the case with Stimulus ver1.0, which played into opposition hands by having Obey and Pelosi fingerprints on it. Oh, and conflating Detroit's issues with banking solvency creates needless distraction .
“Oh, and conflating Detroit's issues with banking solvency creates needless distraction”
I'm not attempting or intending to distract anybody. Issues related to the banks and the “spreading” from banks per se that arise from the consideration of nationalization are similar to and shared with Detroit and other objects of nationalization, and merit mention when, after all, the issue of note is nationalization.