Nationalize the Banks : Baker

Published on Sunday, February 8, 2009 by Beat The Press
Dealing With Bankrupt Banks: Nationalization or Welfare

by Dean Baker

The media continue to do more to misinform the public than to inform
them when it comes to plans for fixing the financial system. Following
the absolute worst in journalistic practices, a front page Washington
Post article explains the Obama administration's policy by telling
readers that the "approach reflects Treasury Secretary Timothy F.
Geithner's philosophy of how governments should respond to financial
crises."

Trees had to die for this garbage? The reality is that the reporters
have no clue as to what Timothy F. Geithner's philosophy of how
governments should respond to financial crises. The reporter knows
what Timothy F. Geithner told them, so why don't they just stick to
passing this information along to readers instead of speculating about
his innermost thoughts?

The excursion into philosophy deflects readers from the real issue.
Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in
business. In effect, he wants to tax teachers, fire fighters, and Joe
the Plumber to protect the wealth of the banks' shareholders and to
pay high salaries to their top executives. No readers of this piece
would understand that this is the process being described.

The Post editorial page carried on with this deception. An editorial
on saving the banks dismissed nationalization because it would involve
the government in running the banks. Then it discusses the idea of
buying bad assets and warns, "but there is a huge risk that the
government would badly overpay in the first place."

Actually, this is not a risk, this is the point. If the government
paid the market price for these assets the banks would be bankrupt and
we would be back to step 1, nationalization. The point of buying the
bad assets is to pay too much, so that the banks can get enough money
to stay solvent. (It is worth noting that deciding how much the
government will overpay, and to whom, also involves the government in
running the banks in a really big way.)

It would be nice if the Post and the rest of the media would report
honestly on the bank bailout and stop trying to conceal plans for a
massive redistribution of wealth to the bank shareholders and their
top executives.

Dean Baker is the co-director of the Center for Economic and Policy
Research (CEPR). He is the author of The Conservative Nanny State: How
the Wealthy Use the Government to Stay Rich and Get Richer (
www.conservativenannystate.org) and the more recently published
Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also
has a blog, "Beat the Press," where he discusses the media's coverage
of economic issues. You can find it at the American Prospect's web
site.

Its time to take over the banks : Baker

"The banks have stolen enough. It's time to take them over."

by Dean Baker
Huffington Post
1/25/09

Hold onto your wallets. The bankers are coming bank for more money.
They burned through the $350 billion that we gave them in the first
round of the Troubled Asset Relief Program (TARP) and they are worried
that even the second $350 billion will not be enough money to keep
them solvent. The selective leaks from Treasury tell us that the banks
will need far more money to cover their bad debts.

The latest story is that the banks want to sell us their bad assets at
above market prices, which was the original plan that Treasury
Secretary Paulson proposed, except the banks want to push off their
junk on an even bigger scale. In one version, the government would set
up a Resolution Trust-type corporation (RTC), like we did with the
bankrupt Savings and Loans in the 80s, which would hold all the
garbage and then gradually resell it to the private sector to recover
a portion of what the government paid.

This is a reasonable course, except there is one big difference
between what we did with the S&Ls in the 80s and the leaked plan being
floated. The S&Ls were taken over by the government and then resold to
the private sector. These were bankrupt institutions that were put out
of business. The stockholders were wiped out, which is what is
supposed to happen to stock holders when their company goes bankrupt.

But this is not what happens in the plan being discusses. In this
plan, the taxpayers just do the banks the great favor of paying above
market prices for their junk so that we can relieve them of the burden
of their past mistakes. The taxpayers get to eat the losses and the
bank executives and their shareholders go on their merry way.

These folks are not market fundamentalist types. The Wall Street view
of the world, and apparently the view of at least some people in the
Obama administration, is that the government always is there to help a
bank or banker in need.

The idea that we would give one more penny to this crew that has
wrecked the economy should make taxpayers furious. There is a
legitimate public interest in keeping the banks operating; a modern
economy needs a well-operating financial system. But, there is zero
public interest in rewarding shareholders and overpaid banks
executives.

These executives bankrupted their banks and brought the economy down
with them. They belong in an unemployment line not collecting
multi-million dollar paychecks in their designer office suites.

The obvious answer is to take over the insolvent banks, just as we did
with the insolvent S&Ls. The government should form an RTC as we did
in the 80s, which would dispose of the assets over time, collecting as
much money as possible for the government. The bankrupt banks would be
restructured and sold back to the private sector as soon as their
books were straightened out. The point of the exercise is not have the
government run the banks, the point is to keep the financial system
running without giving even more money to the richest people in the
country.

This is the only reasonable solution to the mess that the bankers have
created. The other solutions are simply efforts to transfer dollars
from hardworking taxpayers to overpaid and incompetent bank
executives. It is hard to believe that anyone would take it seriously,
if not for the enormous political power of the Wall Street gang.

It's too bad that the Republicans' anger over giving tax breaks to
workers who did not pay income taxes does not extend to giving tax
dollars to Wall Street banks who have wrecked our economy. Where are
the anti-government conservatives when we need them?
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