From Seeking Alpha:
“An actual debate on a receivership bill would be contentious and damaging, and might well involve the insertion of policy provisions that would make the whole thing too unwieldy to do any good. It would also require the appropriation of hundreds of billions of dollars for the banks, to make creditors whole enough to avoid financial panic; fiscal costs cannot be avoided. Money for banks obviously isn’t a popular priority these days. And if a bank takeover spooked depositors, who then began pulling money out of the bank, the administration might have to come back to Congress for even more money.
And that’s just the part of the trouble. Legal challenges would be likely, to either the receivership law or to a specific episode of nationalization. Even if nothing bad happened, markets might get jittery. And in the end, no one has any idea what might be necessary to handle the nationalization of a firm like Citigroup, in terms of personnel, finances, or time.”
That’s Ryan Avent at Seeking Alpha.
Avent points out that Simon Johnson is right to say that government policy is trapped in the web of financial interests (Lila: When was it ever any other way?).
But he also points out that Johnson is incorrect to say that objections to nationalization are simply ideological and a reaction to the label. There are real constraints involved.
Meanwhile at American Prospect Magazine, Tim Fenholz, substantiates this last point when he notes that the main obstacle to nationalization has been Congress, not the financial elites oligarchs
(Lila: of course, Congress is in the pockets of the elites oligarchs too)
My Comment:
As I blogged before, I’m not convinced by Simon Johnson, who seems to have been pushed out suddenly into the fray in the past few weeks, that is, as soon as the sheen had rubbed off Paul Krugman’s halo, as arch defender of the public good (and this isn’t to deny that Krugman was in the front in pointing out the huge inequities between top earners and the bottom in the 1990s and thereafter).
Then, Nouriel Roubini, who struck me as the administration’s ‘designated Dr. Doom,’ was found to have financial ties with Summers.
Not good.
So now, suddenly Simon Johnson, a former IMF economist (he was there in 2007 when the crisis was breaking), who was actually favorably disposed to the bailout when it was first touted (September 2008), is splashed across at The Atlantic, on NPR podcasts and everywhere else, urging immediate nationalization in full populist mode.
Here’s what Johnson said on September 27 2008, about the first bail out proposal.
Johnson:
“Let’s call the $700bn package currently under discussion Plan A. Despite the roadblock thrown up by the House Republicans, we think some form of this plan will pass Congress soon, and so it should…………If Plan A comes out of Congress in reasonable shape, as seems likely, we will support it. We need it to work….”
Posted by Simon Johnson, September 27, 2008 at 6:45 am on Johnson’s co-authored blog, The Baseline Scenario.
Lila:
Does this sound like Johnson was on top of things then? And if he didn’t catch on then, or the year before when he was at the IMF, why is he suddenly the go-to guy?
The economic situation is grave. But it’s only this grave because the government handed over money to the banks in the first place. That should be UNDONE through racketeering charges. Meanwhile, the money given should be frozen while investigation proceeds.
When the government shows it knows how to play by the rules it imposes on citizens, then you’ll see market confidence restored.
I agree that antitrust laws could/should be used to break up the banks – there’s a problem of size. But developing new laws at this point, hurriedly, as Johnson tells us is necessary, doesn’t sound right to me. In my opinion, existing criminal and civil laws should be used. But the problem really is there’s no political will to actually do that (so it seems); instead, you have another change of the rules and structures.
Lila–do you belive:
Johnson is right that the power of financial interests warped policy in recent decades, leading directly to this crisis. I just don’t think it’s correct to extend that argument to say that the Obama administration is primarily constrained by the will of the financial oligarchy….”
First part true–but he implies that the Obama adminstration is free from the will of the financial oligarchy! What planet is this guy from-Obama is the Financial Oligarchies guy. Yeesh, old spanish saying–tell me who your friends are and I will tell you who you are. Faith, err “hope” springs eternal. You too–you think “the government” will do more than mere symbolic prosecutions/investigations?
No. I think what he is saying that some of the objections raised by the financial industry are not venal but meritorious.
If there’s enough public pressure and exposure of actual criminal conduct – and the pressure has to be on the media – IF that’s the case, then yes, it is possible to have a real investigation and charges. There might need to be global pressure as well.
By all means break up the banks using existing antitrust laws or whatever else is already on the books, but it’s a cardinal mistake to act in a hurry and create far-ranging laws and regulations whose implications we might not immediately understand. That’s precisely why we are in this mess.
Why in Johnson the authority on this when all through his watch the crisis unfolded and he didn’t see it or do anything about it?
The IMF has been designated the global central bank and you will find that that is the real reason behind this.
Nationalization will be cover for something else. That is my fear.
Nothing is transparent or above board in DC.
If the Congress acted in a corrupt fashion, then they are bribed which is surely against the law.
That should be the focus.
All this last minute changing and adding of rules and rewriting of things is what is calculated to cause confusion.
It does in a class- room and it will do the same in the market.