Taking Over the Banks

Call it "partial" or "temporary," the momentum for nationalizing US banks is growing across the political and economic spectrum.

President Obama, Paul Krugman writes, is "going to have to decide how bold to be in his moves to sustain the financial system, where the outlook has deteriorated so drastically that a surprising number of economists, not all of them especially liberal, now argue that resolving the crisis will require the temporary nationalization of some major banks."

This follows George Soros' call for "partially nationalizing" banks, a step that "would clear the air and restart the economy."

In today's New York Times, business columnist Joe Nocera recalls the Resolution Trust Corporation, which took over and sold bad assets during the S. & L. crisis of the 1980s, quoting Tim Ryan, who helped direct the response to that fiasco:

"Did the S.& L. crisis cost the taxpayers money? You bet it did--some $130 billion. But, said Mr. Ryan, 'it would have been triple that' without the R.T.C...

"But to carry out this kind of program, the government has to be in control of insolvent banks...Then it can do the same thing the Office of Thrift Supervision did in the early 1990s: close down the worst, sell others to healthier institutions and recapitalize the strongest. You can shovel capital into banks until you’re blue in the face and they are not going to lend so long as they have toxic assets on their books. They are going to hold onto their capital, fearing new losses."

As the Obama Administration prepares to tighten regulation across the financial system with stricter rules for hedge funds, credit rating agencies and mortgage brokers, and more oversight of derivatives and credit default swaps, the banks remain at the heart of the problem.

At some point--and it had better be soon--pouring taxpayer money into the maws of Citicorp, Bank of America et al will have to be accompanied by enough control to get them lending again instead of just fattening balance sheets, merging and paying themselves obscene bonuses.

It will be more complex than FDR's brief bank holiday in 1933, but something dramatic is on the horizon.

Update: On the Sunday talk show circuit this morning, House Speaker Nancy Pelosi actually used the N word. “If we are strengthening them," she said about the bailouts, "then the American people should get some of the upside of that strengthening. Some people call that nationalization."

“I’m not talking about total ownership,” she quickly added. “Would we have ever thought we would see the day when we’d be using that terminology? ‘Nationalization of the banks?'”

Yes, and not a moment too soon.

Bad Banks, Worse Choices

The attempt to save the banking system is looking more and more like a suicide mission for the US government as estimates of bad loans rise above $3 trillion.

* Losses may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year’s economic crisis. “If that’s true," he says. "it means the US banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

*At confirmation hearings for the new Treasury Secretary, Sen. Chuck Schumer reveals that Wall Street sources tell him that, if the government wants to clean out all the toxic assets from the financial system, it will cost $3-4 trillion dollars..

*Financier George Soros criticizes the "bad bank" solution of taking troubled assets off balance sheets.

Such measures, he says, would provide "artificial life support for the banks at considerable expense to the taxpayer, but would not put the banks in a position to resume lending at competitive rates."

He argues instead for "partially nationalizing" banks, which "would inflict great pain on a broad segment of the population--not only on bank shareholders but also on the beneficiaries of pension funds" but "would clear the air and restart the economy."

For non-economists, this has the makings of a headache-inducing debate in the coming weeks. When Congressional politicians (pace John Boehner) get into it, there will be a lot of garbage talk about socialism, free markets, tax cuts, etc--all of it beside the point as the financial system teeters at the edge of an abyss.

If President Obama's economic team decides to try for long-range answers rather than Paulsonish quick fixes, it's going to take all his eloquence to get the public and legislative support needed to start on them.

Murdoch and More

From his dazzling array of affronts to human decency, it is Rupert Murdoch’s insatiability, his pursuit of “more” as the true meaning of life that repels and fascinates above all else.

At 76, he has money and power to burn, but his greed seems to exist on some plane of quasi-religious fervor.

Clichés about loss of potency and fear of death are too pale to explain him. No Citizen Kane, Murdoch is one of a kind. He seems driven to control all the media in the world, even if it means kowtowing to the Chinese government, as the New York Times reports today.

Compare him to Bill Gates, for example, or to his contemporary, George Soros, a successful speculator, who withdrew to devote his fortune to encouraging “open societies, tolerant of new ideas and different modes of thinking and behavior."

Murdoch is not about withdrawing but charging ahead, not about tolerance but conformity, not about encouraging but controlling. He won’t have any troubling getting along with the Chinese regime.

Gates’ and Soros’ sincerity and motives may be subject to debate, but their humanity about the limits of wealth and power offer a contrast to Murdoch, who acts as if he will live forever if only he can keep swallowing companies.

But here is some news for the man who wants to control all the news. In the immortal words of Olympia Dukakis in “Moonstruck”: I just want you to know no matter what you do, you're gonna die, just like everybody else.

But when Murdoch goes, he will get a great obit in the Wall Street Journal.