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Nationalization Gets a New, Serious Look
By DAVID E. SANGER
Published: January 25, 2009
WASHINGTON — Only five days into the Obama presidency, members of the new administration and Democratic leaders in Congress are already dancing around one of the most politically delicate questions about the financial bailout: Is the president prepared to nationalize a huge swath of the nation’s banking system?
“Well, whatever you want to call it,” said Ms. Pelosi, Democrat of California. “If we are strengthening them, then the American people should get some of the upside of that strengthening. Some people call that nationalization.
So far, President Obama’s top aides have steered clear of the word entirely, and they are still actively discussing other alternatives, including creating a “bad bank” that would nationalize the worst nonperforming loans by taking them off the hands of financial institutions without actually taking ownership of the banks. Others talk of de facto nationalization, in which the government owns a sizeable chunk of the banks but not a majority, with all that connotes.
That has already happened; taxpayers are now the biggest shareholders in Bank of America, with about 6 percent of the stock, and in Citigroup, with 7.8 percent. But the government’s influence is far larger than those numbers suggest, because it has guaranteed to absorb the losses of some of the two banks’ most toxic assets, a figure that could run into the hundreds of billions of dollars.
Many believe this form of hybrid ownership — part government, part private, with the responsibilities of ownership unclear — will not prove workable...."
In Jackson's veto message (written by George Bancroft), the bank needed to be abolished because:
- It concentrated the nation's financial strength in a single institution.
- It exposed the government to control by foreign interests.
- It served mainly to make the rich richer.
- It exercised too much control over members of Congress.
- It favored northeastern states over southern and western states.
GLOBAL ECONOMIC CRISIS
Need to Fix Banking Sector for Stimulus to Work, IMF Chief Says
IMF Survey online
January 26, 2009
Economic stimulus alone cannot pull the world out of the current tailspin and more needs to be done to fix the underlying causes of the crisis, particularly in the banking sector, IMF Managing Director Dominique Strauss-Kahn said.
- Economic recovery calls for revamping banking sector
- IMF experience in banking crises shows losses must be fully recognized
- Strauss-Kahn says financial sector continues to undermine confidence
"If there's not a restructuring of the banking system, then all the money that you can put into [monetary and fiscal] stimulus will just go into a black hole," Strauss-Kahn told a panel discussion at Georgetown University in Washington DC.
Restructuring the banking system would involve fully recognizing losses, segregating bad assets held by banks, preferably through a public institution that can take them over, and downsizing the sector "which means that it has in some way to shrink, that some part of it has to disappear." To do this would need strong public intervention.
While a lot had been said about recapitalizing banks and recognizing losses, not enough had been done so far and the sector continued to undermine confidence, he told the panel discussion organized by the Financial Times and Georgetown University on January 26. Panelists also included Roger Altman, Chairman of Evercore Partners and a former U.S. Deputy Treasury Secretary, and William Gale, Director of Economic Studies at the Brookings Institution.
Gale reinforced the Managing Director's remarks. "We have to address the situation in the financial sector. This isn't the usual recession. This is the very deep, very long, very difficult-to-get-out-of type of recession," he said.