Monday, February 16, 2009

Commenting over at Crunchy Con, Spengler?

February 16, 2009 12:51 PM
Very good: the US nationalizes Citigroup, Bank of America, and a handful of other banks who unquestionably are insolvent on the basis of present portfolio values. At this point, every corporate treasurer, municipality, small business owner or individual who has an issue with the bank's lending officer starts calling Congress. The lending committee of the bank becomes the U.S. Congress. What state-owned bank is going to pull a loan on a poorly-run company and throw a thousand workers out of work? The moment a bank goes into formal public ownership, it becomes a political matter. The result will not be the Swedish banking system of the 1990s, but the Chinese banking system of the 1990s (with 40% non-performing loans) and eventually the collapse of US government credit.
Careful what you wish for. Much better to keep the banks private (merge them out when necessary), and institute civil suits to recover losses from bank officers. Take part the bank oligarchy individual by individual: use the full legal resouces of the US government (hire more lawyers if needed).
The response from frequent commentor, Pyrrho:
February 16, 2009 1:37 PM
I agree with Spengler (pinch me .. I'm such a big fan), which is why I've backed away from nationalization. The FDIC 'nationalizes' failed banks all the time, but these money-center banks are far too powerful politically to risk it.
Instead I favor selling the good assets (which can be priced accurately) of the money-center banks to the 'super regional' banks, with favorable financing from the government. We would then revoke the banking licenses of the old money-center banks. They would continue to exist for the sole purpose of working down their balance sheets. (They hold about 75% of the toxic assets in American hands.) Naturally, their shareholders and most of their creditors would lose everything. So sad.
The 'super regionals' would become money-center banks, providing many of the services that were the province of the recently departed, but they would be smaller and geographically dispersed. In time, of course, they would form a new entrenched banking elite. We'll deal with them when the time comes.
Some boutique firms on Wall Street would scavenge the remains of the broker dealers. Not much meat left there.
At any rate, this is another one of my "least-worst" solutions.
What is to be done about the banks? I have no idea...

John Médaille has written a short introduction to Distributism (link via the Distributist Review).

No comments: