A few months ago, I would have (and did!) pooh-pooh suggestions that we were on the verge of a new Great Depression. I'm still cautiously optimistic that, with the right stimulous plan, we can avoid the great big economic iceberg in our path, but that's going to require quick and bold moves from both President Obama and Congress. Meanwhile, the whispers that maybe it's time to nationalize much of the troubled American banking system, have begun to increase in volume, and I'm inclined to jump on board. Kevin Drum in particular has been actively investigating this, and the more I read, the more I'm convinced. Why? A few things:
1. In the first instance,
things are genuinely really, really bad right now.
Consider this item:
Yesterday, Nouriel Roubini estimated that U.S. banking losses related to the financial meltdown will eventually come to about $1.8 trillion. Of this $1.1 trillion comes from loan writedowns and $700 billion comes from losses on securities. Since current total bank capitalization also amounts to about $1.8 trillion, this "leaves the U.S. banking system borderline insolvent if our loss estimates materialize."
Yikes! This is bad. Very bad, and it's not clear to me that the banks have the internal resources available to fix it.
2. I don't have any faith that banks can or will act morally or responsibly. After all, haven't we been down some version or another of this road for a couple of decades now? Banks repeatedly and routinely fuck their customers over for a few pennies on the dollar every chance they get. Meanwhile, it's because of the commodification of crappy mortgages that we started rolling down this hill in the first place! Every time the banking system has been deregulated, they've used that deregulation to further enrich themselves through the exploitation of both consumers and the public trust. It's time that they were put on a very, very short leash.
3. Nationalization seems to be working for other countries. Great Britian is currently moving toward nationalization, and in the early 1990s, Sweden nationalized some of its banking system to avert meltdown. Furthermore, not to put to fine a point on it, we've already nationalized several banks. The question we need to ask now is not whether we should do it, but what is the best course of action to pursue in doing so, and what is the minimum level of nationalization that will be necessary to get banks to hold the line and to properly capitalize them so that they can do their jobs properly?
I know that there's going to be a lot of resistance to this, generally by the same people who said that deregulating banking wouldn't lead us into this mess in the first place. Some of these folks are even in the Obama administration. It's vital at this point in time that we either a) ignore them or b) come up with something better, because the longer we wait without doing something, the bigger this problem is going to get.