Politics
Out of context: Reply #6389
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- ukit0
Good article on the debate within the Democratic party on how to deal with the banks.
http://www.newsweek.com/id/19232…
"On one side are those who want to fix the financial house we have; on the other are those who think we should knock it down so we can build a brand-new one—a new Wall Street, in other words. The keep-the-house-intact crowd includes Geithner and Bernanke, as well as Obama-appointed regulators like Mary Schapiro of the SEC.
They want serious fixes to the Wall Street system—new rules and regulations to repair the old house and ensure that it doesn't burn down again in the future—but they don't much want to change its structure. Having giants like Citigroup and Bank of America dominating the landscape is OK with them, as long as those giants follow the new rules.
On the other side of the debate are critics such as Paul Krugman and possibly Paul Volcker and Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., who think the old house is structurally unsound. They believe that not only can't we solve the present crisis by merely tinkering with the old house, but that we'll assuredly find ourselves in another crisis down the line if we don't dismantle it entirely."
Note to conservatives throwing around words like socialism etc - Obama is listening to the moderate Wall Street types, not the nationalization advocates.
However, it also brings up a good point that Krugman and others fail to address in their critiques - nationalization is no quick and easy fix, in fact it could be a disaster.
"Geithner, in an interview with NEWSWEEK last week, approvingly cited a recent Wall Street Journal op-ed by William Isaac, the former head of the FDIC. Isaac argues, like the Treasury secretary, that taking over the worst big banks (nationalizing them) is just too gargantuan and risky a task.
"Unlike the talking heads, I have actually nationalized a large bank," Isaac wrote. This was the Continental Illinois Bank, the nation's seventh-largest, which fell into trouble during the banking crisis of the 1980s. The 1984 nationalization—or takeover—worked. But it took seven years for the government to sell it off, and that was in an up-market.
Why wouldn't this work today? Isaac asks. "Let's begin with the fact that today our 10 largest banking companies hold some two-thirds of the nation's banking assets, and some are enormously complex. Continental had less than 2 percent of the nation's banking assets," he writes. Further, "who will run these companies when we dismiss the existing senior managers and board members? We had significant difficulties attracting quality people to Continental even without today's limits on compensation. ... What's more, we won't be able to stop at nationalizing one or two banks. If we start down that path, the short sellers and other speculators ... will target for destruction one after another of our largest banks. Finally, the FDIC's plan for Continental Illinois required it to shrink to half its size within three years. To do that now to Wall Street, in the middle of a severe recession "where deflation is a realistic concern," runs against the government's expansionary policy.