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 folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans.

This is true.  At The Wall Street Journal, Jon Hilsenrath writes:

The Greenspan Doctrine – a view that modern, technologically advanced financial markets are best left to police themselves – has an increasingly vocal detractor. His name is Alan Greenspan...

As Fed chairman, Mr. Greenspan was a frequent opponent of market regulation. Sophisticated markets, he argued, had become increasingly adept at carving up risk themselves and dispersing it widely to investors and financial institutions best suited to manage it.

The retired chairman has had to revise his views. In comments at a New York Economic Club dinner late Tuesday, the retired Fed chairman steered clear of much self-reflection on his role in the credit boom. But he did take a new swipe at the market’s self-correcting tendencies and bowed his head to a new period of increased regulation.

“All of the sophisticated mathematics and computer wizardry essentially rested on one central premise: that enlightened self interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms’ capital and risk positions,” the Fed chairman said. The premise failed in the summer of 2007, he said, leaving him “deeply dismayed.”

Self-regulation is still a first-line of defense, Mr. Greenspan said. But after the financial collapse of 2007 and 2008, “I see no alternative to a set of heightened federal regulatory rules of behavior for banks and other financial institutions.” He said hoped hoped it would come in the form of tougher capital requirements for banks.(Real Time Economics);  Cf. Deb Cupples 10-2007:  Greenspan Finally Admits that Deregulation Doesn't Really Work. 

And in fact, Greenspan has suggested that we now may need to nationalize our banking system -- or rather, as he puts it, "some banks."

“It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,” former Fed chairman Alan Greenspan told the Financial Times. “I understand that once in a hundred years this is what you do.”(Think Progress)

Good on Greenspan for at least admitting he was wrong. Yves Smith says:

This crisis had many parents, and even though Greenspan was one of the key actors, he was far from alone. Treasury Secretaries Robert Rubin and Larry Summers were also backers of the financialization of the economy, the permissive regulatory posture, and the strong dollar policy.

Greenspan, to his credit, at least appears chastened by the mess helped create. As far as I can tell, very few of the other perps have questioned their decisions.

Greenspan spoke this evening at the Economic Club of New York. Some of his comments show that he has made some considerable shifts from his libertarian, anti-regulation stance. (Naked Capitalism)

Yes, and former Fed chairman Alan Greenspan ain't the only one.

“In this country nationalisation of some banks – not the whole banking sector – should be a last resort, but it should definitely now be on the table,” said David Walker, head of the pro-free market Peterson Institute and a former senior official in the George W. Bush administration.(FT)

So it has come to this:  even Lindsay Graham South Carolina thinks it is time to admit that we've reached that point.

Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”.

Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received.

“You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]... “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham..

Hurray for Sweden, a country which has enjoyed one of the highest standards of living in the world!

Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

“They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.” (FT)

Not that the knee-twitchers have all got there yet, not to mention Geithner and Summers.  Yglesias observes:

Over the past couple of weeks, I’ve learned that nationalizing banks is an evil Scandinavian notion. Here in the United States, what we need to do is to subject banks to a “stress test.” If banks fail that stress test, they need to be taken into receivership. In receivership the banks will be purged of their toxic assets, and then recapitalized with new private owners. The “cleaned” assets can then be held in an entity that manages them and either tries to sell them off at the best possible price when the panic ends or else hold them to maturity. And anyone who calls this “nationalization” will be forced to read Rebel-in-Chief and Bush Country and then learn to recite passages from memory.

"Thank you Alan, even if you are responsible for both the tech and the housing bubbles," says Jon Taplin soberly.

Pete Abel, one of the center-rightward-tilting bloggers at TMV, remarks:

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.

Heh.  Gawker assesses the terrified flailings of the far right.

Oh no! Not the Swedish model! Look carefully at that terrifying blue and yellow Nordic Cross; it is our generation's hammer and sickle.

What is "the Swedish Model"? That's temporary nationalization of failed banks. See, you seize control of them, clean up the balance sheets, and auction them off. In other words, it's socialism. It's also really the only remaining option, as the current "throw money at them and watch them hoard it because they don't want to reveal that they're insolvent" model just created some zombie banks, like in Japan, and we'd much rather become Sweden than Japan....

It's a terrifying prospect, this "Swedish model," or at least Mr. Drudge certainly hopes it sounds scary, to claim our great empire will become a lowly Scandinavian constitutional monarchy, ranked number one on The Economist's Democracy Index. Well, either he's hoping to scare us with the prospect of boring Nordic democratic socialism or he's just using the term "Swedish model" to further the old Republican talking point that all the bailout money is going to porn (emphasis added).

The horror!  The horror...

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