Fallout: The Financial Crisis

Should the U.S. just nationalize banks?

Chris Farrell Jan 22, 2009
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Fallout: The Financial Crisis

Should the U.S. just nationalize banks?

Chris Farrell Jan 22, 2009
HTML EMBED:
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TEXT OF INTERVIEW

Scott Jagow: This hasn’t been a good week for financial stocks. Investors are dumping bank shares left and right because they can’t see a prosperous future in the banks. There’s been little success with the government’s bailout, and shareholders have to be thinking, the taxpayers will come first, not them. So, that’s prompted some discussion about nationalizing the banks.

We’re joined by our economics correspondent, Chris Farrell. Chris, we’ve sunk billions into the banks, but, or . . . aren’t we already on the way to nationalization?

Chris Farrell: Well we have, what term should we use, creeping nationalization. If you think about with Bank of America and Citigroup, and we have a stake in these big banks, and they’re too big to fail. So we have this creeping nationalization. But we also have this sense, Scott, that we need something different. A different program that we’re moving back toward this world of haphazard, ad-hoc rescues, shifting from crisis to crisis. And so this is why, is it the right move to nationalize the U.S. banking system, that essentially the government, you and I, become the owner of the banking system in order to shore it up?

Jagow: How could we do it?

Farrell: Well, you know, one of the reasons why it seems far-fetched is we have a very large, very diverse banking system, and plus we also have credit unions that are really part of our banking system. And this is what is having people struggle a little bit. You know, what would nationalization look like here? Do you just nationalize the really big ones, the ones that are too big to fail? But then how does that affect the ones that aren’t going to be nationalized? And here’s the nub of the problem: banks have a lot of really bad assets. So there are a couple of solutions. One is isolate them, right? Put them in some sort of bad bank or something like that, so you put a ring around them. Another one is just say, you know we just can’t figure this out, so what we’re going to do is just have the government nationalize the banking system, and we’ll recapitalize the banking system this way. We’ll bring money into it, we’ll get rid of the bad assets, we’ll dress them up and we’ll sell them back to the private sector.

Jagow: Yeah, I could imagine though, CHris, that doing this would be A. Very, very costly, and B. Those toxic assets are scary, and we could plunge ourselves even further into problems.

Farrell: But the thing is you need to do something, right? No one wants the government to own the banks, but the feeling is growing that we have to consider this, that that may be a precondition of getting private capital to come into the banking system again.

Jagow: Is there enough support for that idea?

Farrell: No. I don’t think there’s enough support for that idea. I think there’s a discussion going on among the elites, it’s going on among the economists, it’s out there, it’s being discussed — but no, I still don’t see support in the United States for nationalization of the banking system. No.

Jagow: OK, our economics correspondent, Chris Farrell. Thanks.

Farrell: Thanks a lot.

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