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Decoder: Nationalizing banks
A bank sign
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KAI RYSSDAL: On that topic of government mandates, perhaps you've heard all the talk over the past week or so... That maybe the best way out of this whole mess the banking industry's in is to have one, really big government mandate. That maybe what we really ought to do is nationalize at least some of them. That's a big, scary word for a lot of people -- both economically and politically.
So we asked our Senior Business Correspondent Bob Moon what nationalization might actually mean for this installment of the Marketplace Decoder.
BOB MOON: There's an old joke about the 10 scariest words in America: "Hi, we're from the government and we're here to help." Can you imagine your corner bank branch run by the same outfit that brings you customer service from, say, the Post Office?
James Barth is a finance professor at Auburn University. He says that's what nationalization would mean.
JAMES BARTH: Nationalization, in its basic form, the government actually takes over the banks. It not only eliminates the existing shareholders in the banks, controls the banks, but actually runs the banks. You would have to have people, probably seeing government employees, actually running the banks.
Not everyone thinks Uncle Sam would be that heavy-handed. Bert Ely is a leading banking industry consultant.
BERT ELY: The government would appoint possibly new directors, replace some of the top management of the bank, and then the bank would continue to function as if it was a private entity, but under government ownership and control.
The government could then force the banks to start freeing up credit and lend more. But some experts worry that politicians could end up dictating who gets loans. Simon Johnson is an economist at the Peterson Institute for International Economics.
SIMON JOHNSON: Some of the ideas out there about, "Oh, you should have more credit going to this sector or to that sector or to small business, for example. Those are actually potentially dangerous, because then you get political influence over credit, and all kinds of bad, crazy lending decisions -- more bad, crazy lending decisions -- could be made.
But Johnson thinks the government could also force some healthy changes.
JOHNSON: I think you would probably break up these banks. You might actually make them more bottom-line oriented, more profit-oriented -- as in profits for the shareholders, as opposed to bonuses for the top dogs.
Whether or not the government moves to nationalize the banks, Auburn Professor James Barth points out customer deposits would still be insured by the government. And even if it does happen, he's convinced it wouldn't last long.
BARTH: I don't think anybody's talking about permanent nationalization, but a temporary way in which to get the banks back on a more financially sound footing, and a way in which to instill confidence in our banking system or general financial system.
In Los Angeles, I'm Bob Moon for Marketplace.
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I'm tired of the post office being held up as the epitome of inefficiency. I would venture to guess the total salaries of all postal employees is less than that of all banks. They deliver to each address 6 days a week, is the bank dropping off your canceled checks every day. In one day they deliver more pieces of nail than either fed ex or ups do packages in one year in a year (by a lot). Since 1970 the post office has been completely self supporting; paying their occasional profits into the U.S. Treasury to reduce your taxes. Their rates are the lowest of all the established western democracies. Banks hold onto your money for you , you have to bring it to them (sounds tough). When they turn around and lend it they charge higher rates of interest than most drug dealers. They charge $2.50 for a machine to make a litttle noise and give you $40 of your own money. Have you seen a banker put on cramp-ons and walk over 3 inches of ice in 20 degree weather to get you your money? How many dog bites do bankers get , 95% of postal carriers are bitten at least once in their first five years. I bet I could take the carriers from one average size post office and run four banks and not even match the total salaries paid to one bank president. Nationalizing the banks would work perfectly now as the mail volume drops due to the internet. I think it's a great idea, kudos to the one who thought it up...former postal supervisor and carrier
Why whine about nationalization and give post office a bad rap? Shop at Walmart and wait at long checkout counter - and you will realize that Americans will be willing to accept anything for cheaper price? Give up the smokescreen of capitalistic virtues - look around you and you will see what free market and capitalism has brought. There is nothing call a free market. All rules, regulations are some form of nationalization. The question is - to what degree?.
I recently have had several experiences with the customer services of my bank, which is one of the big ones that has received hundreds of billions of dollars of our taxpayers' money. Compared to the post office, the bank was awful. I spent literally hours on hold waiting to talk to someone, as my problem could not be solved on-line. In many cases when I finally reached someone at the number the bank provided, they were not able to solve my problem but had to pass me on to someone else, which usually entailed more waiting. The post office does a lot better job than this particular bank, and if that is the yardstick by which to measure ownership than the federal government could be an improvement. I am not an advocate for nationalization but these times do not deserve cliches in place of thoughtful analysis, which is what I hope to get from Marketplace.
Doesn't the U.S. already have quasi nationalized banks, i.e., those that are not for profit, like credit unions, which are seemingly are doing well. Couldn't their concept be expanded to create large institutions with a focus on lending to individuals for home and other major purchases. See below and http://mortgagesloans.suite101.com/article.cfm/credit_unions_and_the_mor...
Credit Unions' Structure Keeps These Financial Institutions in the Lending Market
There are two major reasons why credit unions have largely been able to avoid the worst consequences of the recent mortgage/foreclosure turmoil.
The first reason has to do with the credit union operating structure. According to Wolff, "credit unions, as not-for-profit cooperatives, are typically more conservatively managed than for-profit financial institutions. Because they return earnings back to their members rather than generate profits for outside investors, they do not have the same incentive to take risks, and so largely avoided the subprime meltdown."
CUNA Senior Economist, Mike Schenk echoed that analysis in a separate email communication. Schenk contrasts the credit union structure with that of for-profit entities like banks and mortgage brokers who seek to maximize profits, regardless of the effect on consumers. Schenk points to for-profit entities who maximize fee income from first mortgage originations, saying they have been identified as major contributors to the current sub-prime situation.
The second reason that credit unions have been able to avoid the current mortgage meltdown, according the Schenk, is that these institutions hold most of their mortgages in portfolio. He cites CUNA statistics showing that 70% of credit union mortgage originations have been held in portfolio, with only 30% having been sold into the secondary market. According the Schenk, this means that credit unions “care deeply what ultimately happens to those loans—they care if the loans are paid back.â€
Schenk says that the sub-prime crisis, in contrast, has been closely linked to lenders who adopted the originate-to-sell (to the secondary market) model. “These lenders cared little about repayments because the quality of their sold loans ended up being someone else’s problem.â€
Schenk's analysis is supported by the CUNA website which reports that mortgage delinquencies for U.S. credit unions were at 0.7 percent at the end of the first quarter of 2008. This compares to a national average mortgage delinquency rate of 3.32 percent for the same period as reported by TransUnion.com, a credit and information management company.
It has been reported that the United States Postal Service received the highest grades for public satisfaction as compared to all other government service. Perhaps Mr. Moon still feels very cozy to Ronald Reagan's idea that all government is bad. Instead of taking shots at the post office perhaps he should examine what other wealthy nations are doing with the nationalization of their banks.
For the record this program asks me for my financial contribution. I punctured my lung falling on ice delivering the mail last winter. That is how I earn a living Mr Moon. I wouldn't be surprised that many of your listeners work for or have relatives that work for the USPS, a huge organization by any standard.
No apology... no contribution!
I want to echo prior posters. Wherever we've lived, for many years postal workers have consistently given us better customer service than almost any private business I can think of. I've commended them directly and to their supervisors. Mr. Moon, you owe the USPS a heartfelt apology.
The post office prosecutes anyone committing fraud or theft, whether they work for the post office, or use the mails to commit their crimes. My experience with banks is they try to sell me expensive insurance in case the bank helps those defrauding me, and when the bank employees do it, they just add their losses into my fees, because apparently they are embarrassed by the frequency of frauds so they keep them secret.
So, having government workers running bank in competition with private banks should improve service just as USPS,
UPS, Fedex, et al in competition and cooperation deliver better service that either alone would.
The post office prosecutes anyone committing fraud or theft, whether they work for the post office, or use the mails to commit their crimes. My experience with banks is they try to sell me expensive insurance in case the bank helps those defrauding me, and when the bank employees do it, they just add their losses into my fees, because apparently they are embarrassed by the frequency of frauds so they keep them secret.
So, having government workers running bank in competition with private banks should improve service just as USPS,
UPS, Fedex, et al in competition and cooperation deliver better service that either alone would.
Stop it already!!! The story about nationalizing the banks did not need an intro with a cheap shot at the post office. All the employees at my local PO are incredibly polite, friendly, and helpful, even thru the holidays and tax time. The PO delivers to every little burgh and hamlet in the US every day in weather good and bad. And no, I don't work for the USPS. By the way, my local Indymac bank, run by the FDIC is doing very nicely, thank you very much. Just be thankful our government (which, of course, is really us) is there when we need it.
Stop the snarky comments. I could listen to Fox or Rush Limbaugh if I wanted snark!!
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