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Nationalization Now
Saul Loeb, AFP / Getty Images
Obama has criticized bankers for their "shameful" actions. CNBC anchor Dylan Ratigan says his next step should be to wipe them out completely.
Ever since the Bush administration and Congress disastrously doled out the first wave of TARP money to failed financial institutions, the American people have reacted with rising indignation to each subsequent abuse of bailout money (see bonuses, jets, stadium-naming perks, fancy dinners, etc.). Our new president called the exorbitant bonuses banks pay their workers "shameful" and capped executive salaries for banks that receive TARP funds at $500,000. However, President Barack Obama has failed to acknowledge that, whether he likes it or not, he is now the de facto chairman of these banks and we the taxpayers are the investors. It is past the time for the president to assume his job as the chairman of our taxpayer-funded financial institutions on behalf of the American public.
First, Obama must end the game being played right now in Washington and Wall Street over whether or not we should nationalize failed banks. This game was finished before the World Series ended in October. Nationalization won. As it is, there are only two choices for who can run our banks:
Choice A: The same executives who stuffed their pockets with bonuses while running their companies into the ground and leaving taxpayers to foot the bill. (Some of these bankers, as recent disclosures of internal communications from ratings agencies suggest, may have engaged in prosecutable fraud.)
Obama must end the game being played right now in Washington and Wall Street over whether or not we should nationalize failed banks. This game was finished before the World Series ended in October. Nationalization won.
Choice B: New bankers appointed by and answerable to the president. These bankers must provide short-term management of troubled holdings. They must act in a fully transparent manner (why take chances?) and expect overall compensation and perk policies in line with other government agencies. Believe it or not, such bankers willing to do their patriotic duty really do exist—men like Gary Parr, the deputy chairman of Lazard; Rodgin Cohen, the pre-eminent banking lawyer in America and the head of Sullivan & Cromwell; and J. Christopher Flowers, who earned billions of dollars while managing distressed banks in Japan.
Once Obama has new bankers in place, he can begin implementing responsible receiverships. As with previous bank failures, this will require wiping out shareholders while protecting deposits. This is, obviously, bad news for shareholders, but unfortunately there is no other equitable solution. The bank receiverships would be able to write down a given bank's toxic assets and auction them off at fire-sale prices, if need be. The receivers could then refloat the banks in smaller pieces, allowing the government to quickly get out of the business of salary caps and lending standards.
The receivers could also resolve questions like what to do with Citi Field (or any of the other 44 potential TARP companies with stadium naming-rights deals). For example, Citi could keep its name on the new New York Mets stadium for advertising purposes. But the receiver could auction off perks, like the luxury boxes that come with a stadium sponsorship. (Much like New York City recently did with its city-owned Yankee Stadium luxury suite.) An added benefit of nationalizing banks is that we will be able to permanently dissolve those that are "too big to fail." We need to enforce a limit on the size of these entities so that, when one of them inevitably collapses, it does not bring down the entire economy with it.
How Rich People Smoke Pot
Paul Schrodt is a writer living in New York City. He has contributed to New York magazine, Radar, and Esquire.com.
Justice Clinton?
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, corporations and causes, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono. McKinnon is co-chair of Arts & Labs, a collaboration between technology and creative communities that have embraced today's rich Internet environment to deliver innovative and creative digital products to consumers.
genoftheheart
Great piece Dylan! Are you playing "good cop, bad cop" with Gasparino?
Diotima
sounds about right to me
vankuyk
I totally agree, at last someone who has common sense! Go Dylan.
Signer
Um. Write more on this please. I see some short falls, but not as much as I see with the current business model for the banks. Anyone else?
connie47
Whatever it takes to get these people out of control of the banks. This is a whole new world we're in, not by choice, and it's going to take something big and new to get us out.
kingwallop
wow everyone is super excited about running head first into an oligarchy. I guess the people really do get the government they deserve.
TotalRecall9
Sounds good to me. Get the good people in and throw out the bad.
janet1003mn
kingwallop, what don't you get? We -- and by "we" I mean Bush, Paulson, Bernancke, Pelosi, Frank, Reid & Co -- already sold the banks to the U.S. government. That's socialism, folks! And President Obama IS the banking industry's de facto chairman of the board. Do you mean to tell me you'd prefer to leave the foxes in the hen house? If you failed at your job on the scale that these bozos did, would YOU expect to have a job tomorrow? Would you even expect to remain employable in your field, having proven yourself to be an utter fraud? I sure wouldn't. Now that we do actually own their a****, it's time to show their backsides to the door. This is the only proposed solution I've seen that doesn't pretend that these "too big to fail" institutions or the people who ran them -- and pillaged the national economy in the process -- are more important than the collective citizenry of the United States of America. It kills the root rot that will infect any stimulus we attempt. It also plots a path back to a banking system that reflect capitalism at its best, with smart and resourceful people being given a chance to build a better banking system and compete legitimately for our business.
warrwim
Per Dylan, "As with previous bank failures, this will require wiping out shareholders while protecting deposits. This is, obviously, bad news for shareholders, but unfortunately there is no other equitable solution." Let us not forget that bank bondholders will be wiped out as well! This may have an untoward impact or pension funds and financial institutions holding bonds of nationalized entities but remains necessary nevertheless. Why we didn't wipe out the debtholders at AIG, Fannie Mae and Freddie Mac and save the taxpayer a bundle is beyond me.
sophia5
Holy Cow !
The author makes sense in print and is
almost likable.
On television he seems like some
raving lunatic with diarrhea of the mouth,
and by far the most annoying
regular guest on Morning Joe.
Just an opinion.
kingwallop
Janet1003mm
The proper answer is to let the free market fix the problem. Yes everyone responsible for this economic collapse should lose their jobs first and foremost the federal reserve (the major shareholder of fannie and freddie. The people of America have the know how to start a new bank "WE" don't need the government to do it for us. And last I checked your savior Lord Obama is going to give the banks more money and create a bad bank, which by the way is absolutely ridiculous, and has been allowing the Federal Reserve to give out secret loans to the tune of a couple "TRILLION" to undisclosed people or businesses. And you cheer the proposition of more unamerican unconstitutional concepts.
Tlake11
Dylan,
I agree with your view that bank management should be tossed and replaced with appointed managers until cleanup or sale is completed. This would certainly remove the conflicts of interest between managing for short term results vs long term incentives.However given the political realities that such a model will be difficult to launch, I might just propose a new model that instead increases the capitalization of the well managed banks so that they can increase lending - thus not sending good taxpayer money after bad. Idea being that it is typically more politically feasible to reward good behavior than punish bad behavior. The result will be that the shareholders of the shitty managed banks like Citi will have incentive to toss their current management onto the street in short time.Today the incentives are not in place. I know the current bank mgmt is screaming for mark to market to be eliminated but that will only reward the bad management. For some reason folks like Jack Welch want to pretend that toxic assets are worth more than they really are in hopes that time will heal all wounds. tlake11@yahoo
thommie
Loved the article. I just want to ask-- you mentioned breaking up banks that proved to big to fail without bringing down the whole system. Since most of the large banks are larger based on takeovers of smaller regional, community banks--using fake and fraudulent balance sheets they doctored. Is it viable to divest the smaller banks ( which for the most part were run properly) from the failing conglomerates, an make them whole in the interest of justice?
This would seem to protect the small everyday people who used community banks and credit unions, and therefore had nothing to do with this mess, while maintaining the jobs of the little people from the neighborhoold.
Givemeabreak
I say nationalize CNBC. Fire all the anchors (some who call themselves "journalists") who failed to uncover Wall Street crimes and misdeeds and turn the reporting of financial news over to government officials. Change we can believe in.
janet1003mn
kingwallop, not really sure where I was unclear. We (government) already own the banks. People who deny the fact that the US banking system was socialized under a Republican administration and now continue to pretend otherwise (fingers-in-ears, la-la-la style) are kind of sad. But I digress. Anyway, so much for that free market. And now the only way to get back to the free market is to clean out the rot in the current system. I believe my statement about "we" having the know-how to create a better banking system was unequivocal. Were you just echoing my sentiment, or did you have a point to make of your own? As for President Obama, he may be the president, but I call no human being my lord and savior. If you choose to believe otherwise, well, that's between you and whatever higher authority you might (or might not) recognize.
Now, about this assertion:
"Obama is going to give the banks more money and create a bad bank, which by the way is absolutely ridiculous, and has been allowing the Federal Reserve to give out secret loans to the tune of a couple "TRILLION" to undisclosed people or businesses."
Please site your source so it can be thoroughly (and in a non-partisan fashion) fact checked. Otherwise, don't spread rumors and lies. It's not helpful.
Cheers!
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