On Fri, 20 Feb 2009, SA wrote:
> I still don't buy the idea that this was the plan all along.
I sympathize with that skepticism and I would never go that far. The most I'd be willing to suppose for argument's sake is that it was always considered an option even though they said (and are still saying) exactly the opposite.
> If they had been hoping to find political space for nationalization,
> Summers and Geithner wouldn't have gone on record saying "governments
> make terrible bank managers." Those are quotes that can and will be used
> against Obama if nationalization happens.
That dictum, which they are still saying (and which has been repeated as a kind of mantra by each memeber of the latest group of people to say nationalization is a possibility (Greenspan, Graham, Dodd) kind of as if they were crossing themselves before they faced a crisis) might actually be seen as part of the political preparation. Having been on record as saying this repeatedly will arguably help in three overlapping ways:
1) It will make it easier to convince people that they only did this because they were absolutely forced to by extreme circumstances -- that they are not socialists who lusted after this chance to abolish capitalism. I also expect soon to hear a lot about how Continental Illinois Bank and Trust was nationalized under Reagan. (And about how it turned out in the end to cost zero money to the taxpayers, and cost the bank only 3% of its assets).
2) It will make them more convincing when they say this is temporary -- esp. since temporary could be a longer than 2 terms. As Jordan pointed out earlier, Continental wasn't fully returned to the private sector for 7 years -- and Continental, the biggest up to that time, was nowhere near as big or as complex as Citi and BofA. In fact no nationalized bank in history has been.
3) It will provide cover for the fact that this is not going to be an instant panacea and undoubtedly things will go wrong and make the headlines. Even in the Swedish case, it took 2 years after nationalization for the economy to recover. And that was under ideal circumstances. And besides the delay in recovery (since the banks are not the only problem, there's also over-indebted households), nationalization could also suffer personnel meltdowns, collapse of revenues, scandals of incompetence, runs on solvent banks, crises in instruments we haven't even heard of...I'm not saying these things will necessarily happen, but they are real possibilities, plus other things I can't think of. And when they do, the Obama administration will be able to say convincingly Look, we really, really didn't want to do this -- we were forced to by extreme circumstances. We're adults making hard choices non-ideologically. We told you stuff like this would happen. It's why we only did it as a last resort. And we're going to get out of this business as soon as things are straight.
Michael