Originally posted by EvilAxis
I appreciate the distinction you're making. I'm not from the U.S., and can't judge how centralized your government is.
It occurs to me that if you are not from the US, one factor you may not be aware of is that there is tremendous political resistance here to the US
*federal* government taking ownership of large businesses.
Even our national banking system is privately owned. The feds have delegated their soveirgn authority to coin money to a private institution. The
telecommunication system is all private; the postal system is semi-autonomous and run as a business.
The current administration is facing a quandry for that very reason in regard to large banks. They believe that letting the large banks fail will
have a devastating effect on the economy (as many other countries believe as well). It's hard to politically justify just giving the banks [ie: the
bank's stockholders] as much money as they really need to restore their depleted reserves [they've already given billions and it wasn't enough].
So the leading compromise it to follow Sweden's example and invest in the banks, taking an equity position temporarily, with the idea of selling
their shares when the economy improves and thus repaying the taxpayers. The feds might just buy $200B of bank stock...
But the two largest banks today have a market value of only $30 billion, and they need much more than that. The feds can't use the market to help,
without owning 100% of the bank. Some economists say this is the logical thing do to - temporarily buy the banks outstanding shares on the stock
market, bring them back to health, and sell them again.
But owning 100% is considered "nationalizing", which is a dirty word. The Obama administration is struggling for a way to keep the big banks from
failing, without giving away too much money, nor taking ownership of too much of the banks.
That is: our *Federal* government is actually very wary of owning corporations per se. Even the Obama administration, tho that might change if the
financial crisis deepens.
That's different than thousands of state and local governments purchasing stocks on the open market for their retirement funds; they don't regulate
the stock market so there is not much conflict of interest.
Mainly tho - state and local governments desparately need to save trillions of dollars for retirement which will come due in coming decades (just as
private retirement funds do); and they need that money to grow. If you were a city with $30 million in funds that need to be saved to pay future
retirements, where would you put them meanwhile? Probably in a bank, in bonds, in stocks, in mutual finds, in some combination that seems to pay the
highest returns on investment for the acceptable risk level. EXACTLY like a private pension fund, or a corporation with lots of profits or initial
stock offering money, or private investors. Acting in this role, a state or local government's effect on the stock market is pretty much like that
of any other investor - they will pressure management to maximize return on investment, but they don't have much legal control over the company (as
the feds do), nor much financial control as only one of many investors.
That is, the many state and local governments invest in any and all stocks for the same reasons as any investor; the Federal government reluctantly is
currently considering more (temporary) ownership of specific companies for purposes of keeping the economy alive.
I suspect many outside the country (and some inside) are not aware of that major distinction. Just talking about "the" government's ownership
smushes together some radically different dynamics that need to be understood separately.
Search for Paul Krugman's columns for more background; he's an economist who recently won the Nobel Prize (solo!) yet who puts a lot of effort into
communicating in language that non-economists can understand.