Nationalize Our Banks? Yes, In A Way
There has been a good bit of talk on CNN and other news outlets about nationalizing American banks, in order to get credit flowing and help right the economy. Let me make one point here, before moving on. That we need to get credit flowing again is not in question. Our economy revolves around the flow of money and credit is a fundamental need of business small and large and for most middle-class citizens as well. The question that is controversial is how do we go about getting cash flow back into our economy? One answer is for the government to take over the operation of the most American banks (nationalize them).
There is a great deal of argument about this, but Justin Fox, of Newsweek, says the talk is basically nonsense. There is, he argues, already a partnership between American banks and the U.S. government. That partnership began in 1913 when the government created the Federal Reserve and was strengthened in 1933 when Congress approved the FDIC. So, Fox argues, let not waste our time arguing about a nationalization partnership that most Americans already approve (with the exception of Libertarians who want no government interference in the monetary system and Socialists who want total government control).
So, how do we fix the banks? Most agree that whatever we do will cost billions. Here’s what the Senator Chuck Schumer, on Sunday’s Meet the Press, says the Obama administration beginning to do. Starting now under Treasury Secretary, Tim Geithner, people are beginning to sort through the major banks in the United States, to see which ones are doing fine, which ones are doing poorly but can be saved, and which ones are beyond recovery. Some banks will fail. The FDIC will, of course, cover the depositors up to the legal limit, but these beyond-recovery banks will be allowed to fail.
Some other banks are doing just fine. These will be allowed to continue doing what they are doing, lending money, making investments and holding depositors’ funds. There is no point in fixing what is not broken.
Those banks that are in trouble, but can be saved will be nationalized, in a manner that Chuck Schumer calls “good nationalization,” as opposed to what he calls “bad nationalization.” Bad nationalization, Schumer says, is when the government takes control of the banks and manages its daily operation. That, he says, Obama will not touch with a 10 foot pole.
Good nationalization works like this. The government takes temporary control of the bank, dumps all the managers currently employed, gathers the bank’s assets and loans into two piles. One pile is those loans and assets that are working and will make a profit. These the bank keeps. The pile of bad assets and loans are bought up by the government and the government absorbs the loss if the loans cannot be paid off. Now the bank is back on a profitable basis and will be attractive to investors. A new set of managers is selected and the bank is given back to the private sector.
All of this will take months to complete. We will not even notice any change until sometime in late summer or even the fall of 2009. Nevertheless, this plan, it seems to me, is a good one. We’ve got to do something to get our banks back to doing what they need to do, lending money. Everyone that I have heard talk agrees with that point. Lindsay Graham, who shared the Meet the Press program with Schumer did not raise many objections to Schumer’s description of the plan. Graham pointed out some disagreements with Obama’s plan but in general he agreed that something will have to be done to save banks, and the government will have a role.
Some of the facts in this post were gleaned from an article in Newsweek Magazine and from a discussion on the NBC program Meet the Press.
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Yes, let's allow the government, a group of people where few have ever held a private sector job, run our banks and our businesses. We can all accept a share of the "profits" from these businesses and buy our food and clothing from our government as well.
Our government has shown us time and time again they are not capable of efficently managing money, so why not put them in charge of everything money related? Sounds like a really good plan to me.
There are a million reasons not to do something, you just need to find the one reason to do it.
"Good nationalization works like this. The government takes temporary control of the bank, dumps all the managers currently employed, gathers the bank’s assets and loans into two piles. One pile is those loans and assets that are working and will make a profit. These the bank keeps. The pile of bad assets and loans are bought up by the government and the government absorbs the loss if the loans cannot be paid off. Now the bank is back on a profitable basis and will be attractive to investors. A new set of managers is selected and the bank is given back to the private sector. " ~ Bob Herzog
K-Rock has a point. Who in government is qualified to take control of a bank? What current government employee is qualified to judge bank assets? Who in government is qualified to select a 'new' set of managers? Where do the 'new' managers come from? They'll have to be people who are 'old' managers from a different bank, because who else knows how to run a bank? So it'll be bank manager musical chairs. What part of this makes any sense at all?
“If you treat an individual as he is, he will stay as he is; but if you treat him as if he were what he ought to be and could be, he will become what he ought to be and could be.” ~ Johann Wolfgang von Goethe
"Good nationalization works like this. The government takes temporary control of the bank, dumps all the managers currently employed, gathers the bank’s assets and loans into two piles. One pile is those loans and assets that are working and will make a profit. These the bank keeps. The pile of bad assets and loans are bought up by the government and the government absorbs the loss if the loans cannot be paid off. Now the bank is back on a profitable basis and will be attractive to investors. A new set of managers is selected and the bank is given back to the private sector. " ~ Bob Herzog
K-Rock has a point. Who in government is qualified to take control of a bank? What current government employee is qualified to judge bank assets? Who in government is qualified to select a 'new' set of managers? Where do the 'new' managers come from? They'll have to be people who are 'old' managers from a different bank, because who else knows how to run a bank? So it'll be bank manager musical chairs. What part of this makes any sense at all?
What about Freddie or Fannie?
The other PINK meat!
Freddie and Fannie are not banks, they mortgage companies and they have not been well run for years. You really want these types dealing with everyday banking business?
There are a million reasons not to do something, you just need to find the one reason to do it.
K-Rock,
That was a joke! I used Freddie and Fannie as an example of what we could expect if we create another government run program. I've been involved in the real estate profession for over 18 years and was very vocal about their potentially criminal actions for the last 10 years but it fell on deaf ears. If Bob thinks more goverment is the answer, he should move to a socialist country. With all due respect, we have too many "Bobs" teaching and sharing their political views which have played a huge role in the creation of a generation of "entitlement" mentality, instant gradification drones that appear to need government to replace their parents roll earlier in life and bail them out of any trouble they've created.
The other PINK meat!
You had me worried Salmon, thought you were being sucked into the world of Government Solves All Our Problems mentality.
There are a million reasons not to do something, you just need to find the one reason to do it.
k-rock, Bard, and salmon fan.... thanks for your comments.
Your points are well taken. Government does not have a good record of doing this sort of thing. Rex Bell told this story in a post several weeks ago. The government took over the legal brothel in Navada (the Mustang Ranch) due to failure to pay taxes. They then had to close it because it was not making a profit. So, we have the people who cannot make a profit selling sex and liquor trying to run out banks. Maybe not good. But then what shall we do? Should we simply let all these banks tottering on the brink fail? Doing that will surely drive out economy into a full fledged depression, from which we will be years in recovery and causing pain at every level of our society. You all have offered reasonable criticism of what the government is thinking about doing. Any suggestions about what you think it should do?
My friends, My parents were married in 1933. I was born in 1935. My parents experienced the great depression first hand and I learned a great deal about it from them. We do not want this nation to experience anything like that again. If we do nothing that is what will happen. At least, I and most economists (I know there are a few that don't)believe it will. In the long run, we may lose this fight, but if we do, I think we should go down fighting not standing and watching.
You asked who is qualified to do this task. The truth is I really don't know. I suppose Tim Geithner, Secretary of the Treasury, should be qualified and should know who to choose to help him. Geithner was the chief of the Federal Reserve Bank in New York and before that an officer in investment firms that made money. I know he had a problem with his taxes, but he certainly should know how a bank needs to be run in order to make money. Don't get the idea that I'm a particular fan of Geithner. I'm not, but I do think he probably does know how to run a bank.
It is called the free market. Capitolism to be more accurate.
My great grandfather used to say the same thing so many investors continue to say, buy low and sell high.
Right now, banks are at the lowest they have been. There are investors out there who will snatch them up when they can turn them into a profit. Most banks will not fail, although one wouldn't believe that if they listen to the news. Investors are not likely going to step in and buy them up until they know what the government is going to do or not do.
The government, IMHO, is stalling the natural process of free markets by saying they are going to do something to save the banks. Yes banks being bought out by other banks or investors will cause some to fail, some to be "looted" for their cash value, and some jobs to go by the wayside. However, the government trying to prop up failing ventures only allows them to fail over a longer period of time.
Of course, all this is my opinion and you may take it for what you think it is worth.
There are a million reasons not to do something, you just need to find the one reason to do it.
This from an email I received recently says it best.
GM SUPPLIER ANSWERS GM PRESIDENT _ Read this one!
This is one of the greatest responses to the requests for bailout money I have seen thus far.
As a supplier for the Big 3 this man received a letter from the President of GM North America requesting support for the bail out program. His response is classic, and has to make you proud of a local guy who tells it like it is.
"Dear Employees & Suppliers,"
"Congress and the current Administration will soon determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation's history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis......... As an employee or supplier, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard. Thank you for your urgent action and ongoing support."
"Troy Clarke, President General Motors North America"
GO ON DOWN FOR THE REPLY
Response from:
Gregory Knox, Pres. Knox Machinery Company Franklin, Ohio
Gentlemen:
In response to your request to contact legislators and ask for a bailout for the Big Three automakers please consider the following, and please pass my thoughts on to Troy Clark, President of General Motors North America.
Politicians and Management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping this nation, awaiting our new "messiah", Pres-elect Obama, to wave his magic wand and make all our problems go away, while at the same time allowing our once great nation to keep "living the dream". Believe me folks, The dream is over!
This dream where we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded "laborers" without paying the price for these atrocities. this dream where you still think the masses will line up to buy our products for ever and ever.
Don't even think about telling me I'm wrong. Don't accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM's throughout the Midwestduring the past 30 years and what I've seen over those years in these union shops can only be described as disgusting.
Troy Clarke, President of General Motors North America, states: "There is widespread sentiment throughout this country, and our government, and especially via the news media, that the current crisis is completely the result of bad management which it certainly is not."
YES! You're right Mr. Clarke, it's not JUST management. how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass. so they can come in on the weekend and make double and triple time. for a job they easily could have done within their normal 40 hour work week.How about the line workers who threaten newbies with all kinds of scare tactics. for putting out too many parts on a shift. and for being too productive. (We certainly must not expose those lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?
Do you folks really not know about this stuff?!? How about this great sentiment abridged from Mr. Clarke's sad plea: "over the last few years. we have closed the quality and efficiency gaps with our competitors.." What the hell has Detroitbeen doing for the last 40 years?!?
Did we really JUST wake up to the gaps in quality and efficiency between us and them? The K car vs. the Accord? The Pinto vs. the Civic?!? Do I need to go on? What a joke! We are living through the inevitable outcome of the actions of theUnited States auto industry for decades. It's time to pay for your sins, Detroit.
I attended an economic summit last week where brilliant economist, Alan Beaulieu, from the Institute of Trend Research, surprised the crowd when he said he would not have given the banks a penny of "bailout money". "Yes, he said, this would cause short term problems," but despite what people like politicians and corporate magnates would have us believe, the sun would in fact rise the next day. and the following very important thing would happen.where there had been greedy and sloppy banks, new efficient ones would pop up. that is how a free market system works. it does work. if we would only let it work."
But for some nondescript reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us". Save us my ass, Hell - we're nationalizing. and unfortunately too many of our once fine nation's citizens don't even have a clue that this is what is really happening. But, they sure can tell you the stats on their favorite sports teams. yeah - THAT'S really important, isn't it.
Does it ever occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades in this country?... How can that be??? Let's see. Fuel efficient. Listening to customers. Investing in the proper tooling and automation for the long haul.
Not being too complacent or arrogant to listen to Dr. W. Edwards Deming four decades ago when he taught that by adopting appropriate principles of management, organizations could increase quality and simultaneously reduce costs. Ever increased productivity through quality and intelligent planning. Treating vendors like strategic partners, rather than like "the enemy". Efficient front and back offices. Non union environment. Again, I could go on and on, but I really wouldn't be telling anyone anything they really don't already know down deep in their hearts.
I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did when I was their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work through it. Radical concept, huh. Am I there for them in the wings? Of course - but only until such time as they need to be fully on their own as adults.
I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government. Detroit and the United States need to pay for their sins. Bad news peop le - it's coming whether we like it or not. The newly elected Messiah really doesn't have a magic wand big enough to "make it all go away." I laughed as I heard Obama "reeling it back in" almost immediately after the final vote count was tallied."we really might not do it in a year.or in four." Where the Hell was that kind of talk when he was RUNNING for office!!
Stop trying to put off the inevitable folks . That house in Florida really isn't worth $750,000.. People who jump across a border really don't deserve free health care benefits. That job driving that forklift for the Big 3 really isn't worth $85,000 a year. We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe.
That couple whose combined income is less than $50,000 really shouldn't be living in that $485,000 home. Let the market correct itself folks - it will. Yes it will be painful, but it's gonna' be p ainful either way, and the bright side of my proposal is that on the other side of it all, is a nation that appreciates what it has.and doesn't live beyond its means.and gets back to basics.and redevelops the patriotic work ethic that made it the greatest nation in the history of the world.and probably turns back to God.
Sorry - don't cut my head off, I'm just the messenger sharing with you the "bad news". I hope you take it to heart.
Gregory J. Knox, President Knox Machinery, Inc.
"The problem with socialism is that you eventually run out of other people's money."
Margaret Thatcher
Blank response
I was not born in or during the Great depression, But I have done my homework on what was experienced.. a little reading, but first hand by 6 different friends of mine, two of them are 88..then 90, 2@91, last 93.. They lived & experienced that era..
Everyone of them said.. save, and keep as much of your money as you can..in small bills $5's, 10's, & 20's not even One hundred dollar bills they said, & not in a bank for sure.. buried if you have to..
"Plant your gardens, protect your property, & unite with the ones you trust for the bad times.. plan ahead, live within your means, and it will heal in time on it's own..It is going to take time"..
None of them told me to go out and buy a New Big Screen TV, as others suggested to stimulate the economy..Sorry but, Printing more money and throwing it in ever direction possible, bailing out Businesses that have made obvious bad decisions, Government trying to run Business has never worked... look where we are now with them... Giving to those that do not add to a good economy or the solution, in my book is part of the problem..
Businesses fail every day.
I have said many times that "Time Heals all wounds"
A wound can happen in a moment, but it take much longer for it to heal...
Someone is thinking A$$ backward about this.. the repair of damage will not happen in a few Months throwing money at it..
They are looking at it "like shutting up a kid by handing them money to go out to have some fun on a weekend".... this is going to take Years...
"If You Are Not Part Of The Solution, Then Your Part Of The Problem"
Waiting for my stab in my eye for stating my thoughts...
LMAO
It is not length of life, but depth of life.
Ralph Waldo Emerson
How a Man plays the game shows something of his character
How he loses shows all of it..