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isa
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nationalizing banks? 23 Feb 2009, 14:27
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So I just read this article on nationalizing the banks: https://online.wsj.com/article/SB123517380343437079.html

The article talks a bit about why this is a good idea. I'm trying to understand why it's a bad idea - is it just that there's no guarantee that it'll fix anything? and that politically, the concept of "nationalizing" is a risky one?

Thanks :)
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refurb
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nationalizing banks? 23 Feb 2009, 15:25
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Isa,

I see you're brushing up on your economic knowledge. Me too.

I'm sure there are other guys here who can answer this question better, but I'll give it a shot.

One of the big issues with nationalization is political. The US has historically been a very pro-free market country. While in other countries there are gov't owned oil companies, utilities, airlines, telecommunication companies, banks, mining companies, etc, the US has always had a negative view of gov't run enterprises. They are often viewed as inefficient, expensive and slow to react.

So you can imagine when someone suggests that the gov't buy enough of a banks stock to have a say in how it's run, many people get scared.

There is a real risk is that the gov't will start to throw its weight around once it has a large stake in a bank. It may start to pressure the company to make loans it wouldn't normally make or to support legislation that it wouldn't normally support.

However, there have been examples (there was one in Sweden) where the whole process went off pretty well. However, Sweden historically has had a very large presence in the market, so there was likely little opposition to idea in the first place.

RF
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nationalizing banks? 24 Feb 2009, 09:58
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Interesting commentary from Bill Gross:

https://dealbook.blogs.nytimes.com/2009/ ... ing-banks/

https://www.pimco.com/LeftNav/Featured+M ... +Ships.htm

This was pretty funny:

Question: Well thanks, Mr. Gross, but one last thing. Whatever happened to your mustache?

Answer: My mother always said there was something shady about a man with hair on his lip, but then she’d never met Mohamed El-Erian and Paul McCulley whose mothers undoubtedly approve. I think my mom watched too many Charlie Chan movies in her day, but I can’t be sure. We feel the same way about this economy though, Madame Congresswoman. It’s hard to trust policymakers; there’s too little consistency, not enough boldness, and too much political game playing. Say a little prayer will ya, but tell those Congressmen to shave their lips just in case.
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nationalizing banks? 24 Feb 2009, 10:47
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refurb
There is a real risk is that the gov't will start to throw its weight around once it has a large stake in a bank. It may start to pressure the company to make loans it wouldn't normally make or to support legislation that it wouldn't normally support.RF
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Case and point, Freddie Mac and Fannie Mae circa mid to late 90s. These government sponsored enterprises (GSEs), responsible for buying mortgages from banks, were leaned on heavily by the Clinton administration (HUD specifically) to buy up increasingly risky loans from lenders in a effort to get more Americans into homes as part of the 1994 National Homeownership Strategy. If the federal government did not have a stake in this institutions, I have a hard time believing that they would have been willing to buy up any subprime loans at all.

I think another problem is that the federal government is not equiped to handle oversight of large corporate entities, let alone the day to day administration.