When Will The Bank Nationalization Madness End?

By: Scott Nelson
Staff Writer

The Obama Administration is said to be in talks to Nationalize several large
U.S. Banks, or at least increase their stake in some of them (such as Citi).

We here at the Global Affairs Council have wondered with growing unease for some time at the Government’s intentions in this area.

Hopefully I don’t need to go into a discussion of why the Nationalization of banks is a terrible thing. We’ve commented in the past that the Government is not equipped to run a bank and would only make matters worse. Many government officials probably couldn’t even get an interview for an entry level job at a large bank, let alone run one.

Why, we wonder, doesn’t the Government simply create several new banks and loan all that money to them?

The old banks have failed, we should let them die.

The only reason we can’t do that is because of the risk of contagion and the further tightening of the credit markets due to fear of other banks collapsing.

But! If the government created several new banks (and by “created” I mean grant charters to independent private individuals not affiliated with the government in any way) and then loaned all those billions to them, there would be complete transparency. We, as investors, would KNOW that those new banks don’t have any toxic assets that could potentially wipe them out.

That would completely remove the fear that would have lead to contagion.

Investors would feel comfortable investing in these safe new banks, businesses would feel safe conducting business with these safe new banks, and the public would feel comfortable keeping their savings in these safe new banks.

The major banks have failed. Criminally failed. Banking is an incredibly easy business. You take in deposits, you save a percentage of those deposits and loan the remaining amount out, and your profits are the difference between the interest rate that you pay the depositors and the interest rate you charge the people whom you make loans to. Easy.

The fact that these major banks have screwed up something that is so fundamentally easy is all the proof we need that they should be allowed to fail. Remember the old view of the stodgy banker closing shop at three in the afternoon and playing lots of golf? There’s a reason that stereotype used to exist…because banking is a sleepy, easy profession.

Let’s stop trying to rescue banks that can’t be rescued, and SHOULDN’T be rescued. Lets let some new blood into the system and put this madness behind us.

Comment on this story below.

February 23, 2009 | Filed Under Banking, Barack Obama, Economics, Government Intervention, Nationalization, Recession, Russia, Uncategorized, World Analysis | 1 Comment 

Welcome To The Global Affairs Council

Welcome to the Global Affairs Council.  The Council strives to be your source for in depth global affairs analysis and discussion.  In the weeks to come we will expand our new web site to bring you articles by some of the leading voices in International Relations and Global Analysis.  Check back soon!

August 20, 2008 | Filed Under Uncategorized | Leave a Comment