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Friday, February 13, 2009

Give everybody a piece of the TARP action

Nick Kristof nailed it the other day:

As for the nature of the bailout, President Obama pointed to Sweden's resolution of its bank crisis as a solution. ''They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again,'' he told ABC News on Tuesday. ''So you'd think looking at it, Sweden looks like a good model.''

Mr. Obama then suggested that it wouldn't work in the United States, partly for cultural reasons. But a broad range of experts believe that some variation of nationalization is the only way to revive the banks quickly without squandering vast amounts of taxpayer dollars. Even the managing director of the International Monetary Fund suggested that Washington think of the Swedish model.

America's horror of ''nationalization'' could be defused by handing out shares to all American households. President Bush used to talk about building an ''ownership society.'' Well, giving shares in big banks to all American households would be a terrific way to do that.

For many Americans, it would be the first time they directly owned stock -- and, finally, something good could come from the banking Bust Bowl of 2009.

Go for it, B.O.!

Comments (11)

I fear that the real reason the bailed out banks and financial institutions continued paying out large bonuses is that their executives know that their institutions will be nationalized once regulators get a look at their books, or worse that they know the situation is so dire that there will be a "lost decade."

Some economists think nationalization is the only way to save the US financial system; that Geithner's plan is too late.


It's just crazy to keep handing over our grandkids money to the schmucks who flushed the banking system--time to go big.

Hell no! You aren't going to stick me with ownership of those banks. What would I want with mortgages from people who can't pay, debt from companies like going-bankrupt Charter, and a $500,000 cap on my income? Well, the last is not a problem, really. But ownership might require that I actually read all those privacy notices.

Trying to allow people who couldn't realistically pay mortgages in an 'ownership' society is what got us here in the first place.

Nationalizing them is the only approach that makes sense. Or, you can regulate them down to the last gnat's behind, but call them private.

In any case, if recent history hasn't given tangible proof that the strategic importance of healthy banks to our society needs to trump the ideology of savage capitalism, then we are, as a society, doomed. At this point, the greed of those who make their dimes off of Bill'O and Rush and Co is being allowed to trump our collective interest in social survival.

Somebody did a census of the talking heads being put on screen for our edification on the stimulus package. Only one in five was an economist. The rest were partisan ideologues.

A little poem Jack that offers my take on the overall situation.

We’re Obama, Pelosi, and Geitner and Reid, We’re brilliant and caring, we know what you need.
You're worried and troubled; yes, we feel your pain.
New spending it’s coming; you can’t stop our train.

Our country was ruined by Wall Street and Bush,
They borrowed and spent and we’re flat on our tush.
But we have the answer, we’ll borrow and spend.
Budgets are boring; the government’s your friend.

We’ll solve other messes Bush left on our plate,
The prison at Gitmo-- symbolic of hate.
We’re shutting down Gitmo, by this time next year.
(We just hope the prisoners don’t end up right here.)

Our motto is transparency; our motives are pure.
You will not see lobbyists or flim-flam men here.
We’re clean and we’re vetted, we serve ‘cause we care.
(Except for some tax cheats, but they’re pretty rare.)

The world yearns for our leadership, and so we will send,
A crack team of diplomats, to make all our friend.
After spending some hours with Hillary and Joe,
Who could possibly still hate us, they’re brilliant you know.

We provide leadership; your job is to praise us.
We’re smart, so concerns and contrary facts do not faze us.
There’s an emergency people, fast action’s essential.
There’s no time for questions, the threat’s existential.

The mortgage solution seems so simple to me. Why doesn't the gov't simply take over all bad mortgages and do the following:

Take 31% of borrowers income as a payment threshold. Convert their current mortgage to a 30 yr fixed at 4.5% for a payment amount equal to their threshold and then take any remaining loan principal and attach it as a lien to the home. When they sell, the proceeds pay off the lien. If any residual, they enter into a long term repayment plan.

For example:
Homeowner A makes $35,000 annually
31% threshold = $10,850 per year
New mortgage = $175,000/30 yr/4.5% fixed
Old mortgage = $240,000
Lien on home = $240,000 - $175,000 =$65,000

End result:
Homeowner stay in home
Affordable payments are fixed
Taxpayer gets reimbursed over time

If we create "One Bank" (a joint venture of the 50 sovereign states and the federal government) would there be any residual need for continuing the federal charter for the private Federal Reserve Corporation?

Has anyone dared to read 18 USC 1014 regarding the overvaluation of collateral. It is inescapably relevant to whether any bank can claim to their customers that "deposits" are covered by the FDIC. The government could strip the FDIC covered designation from unsound banks. How many would be left today?

The legal tools are at hand, without the need for any new legislation. And have been for a long time. They were present 18+ years ago when I tried in vain to object to allowing any one individual to get more than the $100,000 "deposit" insurance cap merely by distributing their savings across multiple institutions (using deposit brokers or not). I argued then that the "deposit" insurance was prostituted to facilitate the government subsidized monopolization of banking by the likes of Bank of America.

The entire TARP fiasco prostituted the FDIC "deposit" insurance coverage in like manner.

This call for "nationalization" is likewise not a solution. As an Economist I see no functional difference between a private monopoly (or oligarchy that acts as a monopoly) and a public monopoly. A private monopoly cannot exist except where government chooses to allow it.

Imagine that Erik Sten were designated the head guy of our newly created One Bank? Would it make you any more comfortable if he volunteered to work without pay?

Someone needs to explain to me Americans aversion to anything being 'nationalized' or 'socialized'. I'm Canadian but have lived here a little over 12 years and I've never understood why Americans get so uptight over those two words. Of course, I grew up in a semi-socialist society, kind of a hybrid of Europe and America so I guess I'm just used to that model. If I mention nationalized healthcare to some people and my preference for it they literally freak out and call me a Communist.

The only thing I can relate this to is my Mum used to say the difference between Americans and Canadians is this: Canadians value the rights of society over the rights of the individual, whereas Americans value the rights of the individual over the right of society. Hmmm.

Amen Canucken! Canada has it right!

americans have an aversion to nationalization?


perhaps you can explain what this is:


_ _ _ _ _ _ _ _ _

imo, the aversion to "nationalization" stems from the inability of the goldman-sacks-obama treasury department to figure out how to spin massive wealth transfer to rich oligarchs as an economic rescue for joe and jane six pack.

lesser of two evils, indeed.

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