"It's not that the principles of limited government and a market economy have lost their value; both remain foundational to American life. But the time for blind worship of the machinery of the market has passed, along with blanket condemnation of the public sphere."
My newspaper column is about bank nationalization and the end of a political era. You can read it after the jump.
Nationalization: Not Just for Socialists Anymore
By Edward Cone
News & Record
Well, they told us we'd see radical government intervention in the economy if Barack Obama was elected, and it turns out they were right. It seems increasingly likely that the United States government could nationalize a good chunk of the banking industry.
But this is not the socialism of Joe the Plumber's nightmares. It's meant to be temporary, with banks returned to the public sector as soon as possible. The plan, still vaguely defined and held at arm's length by the Obama administration, is supposed to fix the banks at long last. It is being endorsed by the likes of former Federal Reserve Chairman Alan Greenspan and South Carolina Republican Sen. Lindsey Graham. "Left-wing kooks," I've been calling them over at my blog because, hey, irony is cheap, and we're all looking for a bargain these days.
Of course, the government has been heavily involved in the banking business since the waning months of the Bush administration (I wonder if he'll be remembered as Red George, our first socialist president). But so far, we've been practicing what some call "lemon socialism," in which the government bails out failing companies and their shareholders with public money. This is also known as socializing risk and privatizing profit.
The talk now is of putting big banks (names whispered include Citigroup and Bank of America) into receivership, just as the FDIC does to smaller banks with some frequency. If the stress-testing initiated by Treasury Secretary Tim Geithner shows a bank to be insolvent, the feds could step in and take it over, stripping out the toxic assets and giving the institution a fresh start. No more pretending that these banks are just short on liquidity, no more propping up the stock price with hundreds of billions of taxpayer dollars.
This option would be extremely unpleasant for investors, many of whom bought shares in these banks under the assumption that they were making conservative investments -- buying what used to be called "widows and orphans" stocks because they were safe for the risk-averse. The impact on other institutions, including companies with investment portfolios and nonprofits like schools and charitable foundations, would be ugly. Greensboro, which has seen a huge loss of wealth with the decimation of AIG (the owner of our homegrown United Guaranty) and Wachovia, could take it in the chops again. But the alternative might be continuing to put your money in the shareholders' pockets, which we can't afford in either financial or moral terms.
So far, the Obama administration has maintained a studied disinterest in nationalization, although some see Geithner's stress-test plan as a backdoor way of getting there. With a drumbeat that started with economists, including Nouriel Roubini and Paul Krugman, spreading to the likes of Greenspan and Graham, the political environment seems to be increasingly favorable. I'm sure any nationalization plan to emerge will draw plenty of fire, but so far things have been pretty quiet on the ideological front (opposition by interested parties and their political friends is more plentiful).
Roubini thinks nationalization will happen in six months. That's a scary thought because it means we won't address a core element of the ongoing economic malaise until late summer. But even if a receivership option never materializes, the situation seems to indicate that attitudes on the role of government have shifted precipitously after a generation of less-is-always-better rhetoric. In a column last fall, I cited the aftermath of Hurricane Katrina as a critical moment, when Americans realized that we actually do want a competent government. This financial storm is another such moment.
It's not that the principles of limited government and a market economy have lost their value; both remain foundational to American life. But the time for blind worship of the machinery of the market has passed, along with blanket condemnation of the public sphere. Nobody wants booted government agents kicking in doors without a warrant -- unless they're firefighters.
© News & Record 2009