Epiphanyblog

All about ideas…

Nationalizing U.S. Banks?

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Many on the far left advocate nationalizing banks as a way to control the bleeding of tax payer dollars and prevent bad actors, like John Thain, from taking advantage of the taxpayer. However, it is an extremely bad idea for the Fed. government to nationalize banks for two very good reasons.

First, the American populace still believes in the market system. Unlike Europe which has flirted with socialist tendencies over the last 60 years, the U.S. has remained firmly rooted in an economic, business model that is devoid of too much intrusion into markets. Teddy Roosevelt was the first President to interfere with the total free market capitalism that existed in this country by creating legal rules and regulations on how industry could behave. But even he refused to take over any business because he realized that regardless of how badly some businesses behaved, i.e. the railroads and allied industries, it was essential to the American economy that businesses be allowed to grow or die according to market forces.

Unfortunately, we are in a position now where too many banks have been allowed to grow too big. If those banks fail, like Citigroup – a conglomerate forged following Gramm’s change in the law, with approval under the Clinton Admin. watch – the taxpayers of the U.S. will lose billions, if not trillions, of dollars. Arguably, banks of this size should never have been allowed to exist, and certainly their exposure to huge leverages were a failing of the regulatory agencies, in particular the SEC.

Nevertheless, for the Fed government to take over the banks would be a huge mistake on the part of the Fed government. To do so would ruin the financial sector of the stock market and prevent its comeback.

Second, such a move would spell the death-knell of the Obama Administration. Because there would be an enormous outcry from voters from one of the country to the other, the new Administration would be finished before it began. Not only would Republicans flood the media with partisan releases about Obama-style socialism, such as never before seen, the American populace would revolt at the ballot boxes. America prizes its illusion of free markets.

The far left needs to forget the idea of nationalizing banks and focus on how to resolve the problems created by the myriad of toxic paper that exists within the banking system without destroying the banks, further disrupting an already deeply fragile economy, or assuming a taxpayer debt that might never be recovered.

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