Diary

A New Way Forward addendum

Just to clarify, on the surface the group A New Way Forward looks like it has the right idea;

NATIONALIZE: Experts agree on the means — Insolvent banks that are too big to fail must incur a temporary FDIC intervention – no more blank check taxpayer handouts. (see Krugman on nationalization)

Krugman in his linked article says he’s all for bank nationalization, only as long as it’s “temporary”;

Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.

How would nationalization take place? All the administration has to do is take its own planned “stress test” for major banks seriously, and not hide the results when a bank fails the test, making a takeover necessary. Yes, the whole thing would have a Claude Rains feel to it, as a government that has been propping up banks for months declares itself shocked, shocked at the miserable state of their balance sheets. But that’s OK.

And once again, long-term government ownership isn’t the goal: Like the small banks seized by the FDIC every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”

When is anything ever “temporary” with the government when it comes to takeovers? Once the bueraucracy is in place, good luck dislodging  it.

REORGANIZE: Current CEOs and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused. (see Simon Johnson on reorganizing)

DECENTRALIZE: Banks must be broken up and sold back to the private market with strong, new regulatory and antitrust rules in place– new banks, managed by new people. Any bank that’s “too big to fail” means that it’s too big for a free market to function. (see Mike Lux on decentralization)

They say also;

“Through their blind and unconditional faith in the financial markets, the banks and the government have made us all into victims of greed gone out of control. This crisis is an opportunity for President Obama to lead the U.S. in a new direction; one that values economic growth, but protects the well-being of the public before the bank accounts of the world’s financial elite.

“But, so far, the policies proposed by the Obama administration to deal with the crisis look too much like the Bush-Paulson bailouts.”

We can pretty much agree with them that the TARP bailouts were a horrible idea with no accountability, argue with them over who’s fault it all is, and partially agree on the way forward. With strength in numbers, we have a better chance of real reform, and though I doubt they’ll join us on the social agenda, it’s worth a shot.

Just one point of caution, remember who these people are and who they attract;

Strength with these numbers we don’t need.