The Case AGAINST Nationalization: Unintended Political Consequences

[FrenchieCat]

Nationalization is certainly on the table, but whether it is the best avenue to take is still up to debate, regardless of what the premier economists say.

It may sound odd to some, but our domestic economic policies have everything to do with how we are perceived globally at this point, because to a great degree, "they" literally do "own" us.

So we can argue Krugman vs. Geithner ad nausea, as long as we all appreciate that our issues are quite serious!

The banking crisis as a foreign policy issue

If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.

No one wants to say it, but essentially the Fed has been bailing out European banks.

The inflation-adjusted cost of the Marshall plan has been estimated at about $115 billion in current dollars. If we end up spending $250 billion on AIG, how much of that sum will go to European financial institutions and might it someday exceed the scope of the Marshall plan? (I do not, by the way, think that central banks ought to treat foreign creditors differently.)

One attempt to formulate a bailout plan for eastern Europe just failed. This is round one in a series of longer negotiations. As the European financial crisis worsens, and Germany asks itself whether it will bail out Ireland and Hungary and maybe others, it will become increasingly clear that major foreign policy crises are afoot.

The best actual marker of the progress of the financial crisis is not stock or real estate prices, but rather how well international cooperation holds up.
http://www.marginalrevolution.com/marginalrevolution/2009/03/the-banking-crisis-as-a-foreign-policy-issue.html

The fact that the counterparties are overseas means that out of the three options: bailout, bankruptcy, or nationalization — none are satisfactory.

A bailout means that the government makes good on the value of the securities, including the derivatives which are tied to the collapse of the U.S. economy. That means the worse things get, the more money flows out of the country. Not politically acceptable.

Letting insolvent banks go bankrupt is the option being pushed by some politicians, including John McCain. In some ways it would be the cleanest solution, allowing the bankruptcy courts and the FDIC to do the tough job of allocating the losses from the toxic securities.

The problem, though, is that they tried the bankruptcy option with Lehman, and they nearly broke the global financial system in the process. The Lehman bankruptcy backfired, creating new panic around the world. This reflects how much money many foreign investors had put into the U.S., and how many worried about losing it when Lehman went under.

Nationalization creates a political problem. Once the government buys a company, it is financially and morally responsible for its debts. It puts the U.S. government in the position of either using taxpayer money to bailout foreign investors, or telling foreign investors, no, the richest country in the world is not going to pay its debts.

What’s the solution?
Conclusion: Sometime later this year we will have a massive global conference aimed at simultaneously resolving the banking crises in the major developed countries. The goal will be a political negotiation of the value of the toxic assets, and a clearing of the books.

If the conference succeeds, then it will be possible to fix the financial system relatively easily. But if it fails, then things get dicey.

http://www.businessweek.com/the_thread/economicsunbound/archives/2009/03/a_simple_guide.html?chan=top+news_top+news+index+-+temp_news+++analysis

this is a global issue that need global regulations.

Obama discussed this issue.

"We've got two goals in the G20," Obama said during a meeting in the Oval Office with U.S. Treasury Secretary Timothy Geithner.

"The first is to make sure that there is concerted action around the globe to jump start the economy. The second goal is to make sure that we are moving forward on a regulatory reform agenda."
http://www.newsdaily.com/stories/tre52a4c4-us-obama-g20-goals


So why not choose to Nationalize, you may ask?
the answer is increased potential for unintended consequences-

From my viewpoint, nationalization poses the problem that whatever happens internally to any of these companies once nationalized that isn't pristine perfect, becomes a potential scandal for the Corporate media to blame on Government incompetence or/and waste. We must remember that we have the enemies perfectly standing by to make such a case.

The first obvious difficulty out of the gate to be seen in the horizon with these companies if nationalized, is that this government would be forced to replace management level executives. We are talking about hundreds, if not thousands of personnel replacements. You better believe that in the political climate currently being created, the media would force the issue, and with the AIG Bonus Outrage and the populist disdain of American Executives fresh on the American publics mind, this would be a requirement and quickly a potential PR nightmare in the making.

But who does the government recruit to come in and take over then? Who has the experience needed and required to do what is needed to be done but isn't tainted by having worked in the financial market industry? This could be an endeavor that would resemble vetting on steroids. The scariest part is that it would only take one bad choice (and it would be the media that decides), and the distractions would commence! This single process could prove to be 500 times more difficult than having cabinet members confirmed, and just as time consuming for this young and ambitious administration.

One wrong choice could quickly lead into a scandal that could spiral out of control and propel the president's critics into the cat bird seat.

Of course, that is only a fraction of what could go wrong and perhaps why nationalization is not what this administration is opting for, as the real problems to solve are so great after 8 years of Bush. To be frank, an unintentional distraction could create havoc in our future plans of the next four years. It is an occurrence with the potential of bringing this administration crashing down pronto; as it would be forced to be held accountable for every single thing that goes on in a giant international company fraught with real challenges (cause as you may know simply announcing Nationalization of any large company is only the beginning, not the end of a process).

That's why critics are great as long as they have looked all of the way down the road, and are in full knowledge of the possible unintended consequences, of which there are many.

We are not a socialist government (as some of the countries that have Nationalized), and with a Corporate Media nipping at the Government's heels, this could become quite a combustible cocktail. Nationalization could severely work against us and become the easiest road to returning this country back to a governmental hands-off approach for years to come. We could literally end up walking ourselves back to the very same Hands-off Bubble Economic system that we have just experienced.

This could provide fodder for opposition to Government ran health care, public education, and anything else that we see as the government being good for!

Now, folks can swipe this away as being purely speculative and hypothetical and simply the tale of someone seeing the worse as the inevitable. But then I ask these same folks to think about it again, and tell me why there is no possibility for this to be the case, whether via the issue I raised of staffing issues, or other potential problems that I just haven't listed.

In other words, apply your theory to our very real world now, before we go there.

PLEASE.


To learn more, Please go here: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8281017&mesg_id=8281017

[FrenchieCat]

1. I'm awaiting the Nationalize it crowd to bring me their arguments.

I want to debate.

[Better Believe It]

13. I'm waiting for you to bring some credible arguments against nationalization

I'm listening!

[FrenchieCat]

14. I don't think you are.

And that's fine by me.

It just makes more obvious why you would respond with a non-response.

[pscot]

16. Let them fail

If that results in problems for pension funds and the like, so be it. We can sort that out on a case by case basis. It's not going to cost us any more than continuing to shovel money into Wall Streets insatiable maw. And at least we'll know the money is going to ordinary Americans rather than the thieves who set this avalanche of greed in motion.

[FrenchieCat]

17. You have a right to that opinion......

but it doesn't make your opinion right.

You fail to even ring the doorbell on this one;
meaning you are talking about short term satisfaction.

Do you see any negative coming out of your scenario?
Because if you don't, then you aren't looking.

Your solution is the McCain-Shelby solution.
That should set off bells in your head.

[pscot]

24. It seems we have three options

We can let the market sort things out. And the market seems to disagree with Geithner's view that the assets of these banks have considerable value. This would get rid of the burn pile, but it might set the woods on fire as well.

We can try Geithner's plan, which involves coaxing someone into buying these suspect assets by guaranteeing their value. This pushes the bailout down the road a bit.

The third option is nationalization, essentially receivership. If the term nationalization is unpalatable, then just call it bankruptcy. The FDIC takes over failed banks all the time, and no one says boo.

The second option is the only one that preserves the shareholders and bondholders capital, which seems to be Geithner's chief intent. That works out well for the private stakeholders, but not so well for the public.

I would argue for bankruptcy. A reader over at TPM suggested that people familiar with the running of non-profit organizations or foundations be brought in to take over the management of these failed banks, and supervise the workouts. They have the chops needed for the job. This would remove the ones responsible for the problems. At the same time new, rational compensation regimes would be installed: no more 40 million dollar a year executives. Some provision would have to be made to protect pensions and retirement plans, but individual bond and shareholders made a bet on these companies, and they lost. As for European or Asian banks that stand to lose money, let their own governments bail them out.

[uponit7771]

32. "letting them fail" = I'm rich and can wade through the effects of another depression or I don't...

...know HOW big the Bush admin let the national level banks get and what it would do to our overall economy.

The domino effect of "letting them fail" wouldn't stop for almost 5 years.

Propping them and taking them apart SLOWLY like Bernanke said is the most prudent way.

[rufus dog]

33. Exactly!

Then people would be pissed that the fat cats aren't feeling as much pain, the media will rip the fucking shit out of Obama, the core will be pissed off because they are worse off in 2012 than they were in 2008, and we have Mitt Romney as President Elect.

Great plan.

[FrenchieCat]

34. Almost a genius plan, if one is a member of the GOP!

[TankLV]

46. I noticed that the GOAL of both views is the DISMANTLING of these enterprises...

and I heartily concurr.

But TAKING THEM APART must be kept FRONT AND CENTER as the ultimate goal - and on that we can agree...

[Zynx]

40. That will cost us at least $4-5 trillion to bail out depositors.

We will never see that money back. We will see most of TARP back.

[jeanpalmer]

That may be the best course

[Odin2005]

2. Excelent post.! k&R!

"Nationalization creates a political problem. Once the government buys a company, it is financially and morally responsible for its debts. It puts the U.S. government in the position of either using taxpayer money to bailout foreign investors, or telling foreign investors, no, the richest country in the world is not going to pay its debts."

YIKES!!! That seems so obvious yet I never thought of it! :wow:

[FrenchieCat]

3. I don't think a lot of folks have.

Its kind of like planning the wedding and believing that once the ceremony is over, we live happily ever after.

In my opinion, the wedding marks the beginning, not the end of a marriage.

[uponit7771]

5. Yeap, I was telling some coworkers the other day we'd be responsible for the banks bonds

...and if we default on those bonds foreign governments stop buying ours.

AIG put us in a fix, the Bush admin has screwn up royally.

[Odin2005]

9. That bastard PAULSON screwed us up royally. He literally staged a coup.

In the last days of The Misadministration Paulson and his bank buddies stole control of the government from the neo-cons.

[terisan]

21. Actually the Democratic Party, Bush, and Wall Street staged a coup. Lots of yelling for the

cameras last Fall but not much honest talking to the the people.

.....and now our politicians Dem and Republican are accepting campaign cash from the bailed out banks.

[Odin2005]

22. Do you do nothing but bash the Dems?

:eyes:

[FrenchieCat]

23. And this relates to my OP how.....exactly?

:crazy:

[terisan]

25. It relates directly to the poster to whom I responded. Your post is quite interesting and thought-

provoking but i didn't think I could make a response worth reading until I research the issues more thoroughly, which I am doing.

[uponit7771]

28. unn, I don't exonerate dems but the onus belongs to "small government, deregulate everything" reThug

...and conservatives.

[Telly Savalas]

39. This is essentially happening already.

By committing itself to endless bailouts of the Too-Big-To-Fails, the U.S. government is ensuring that these institutions will be able to meet their debt obligations to foreign counter-parties - i.e. it's using taxpayer money to bailout foreign investors. Were the government to place restrictions on bailout recipients paying foreign counter-parties, it would have the same effect of straining relations with other countries.

[jeanpalmer]

47. Doesn't it depend on what you mean by nationalization

[uponit7771]

4. I would LOVE to hear Krugmans answer to this, he's not answering the simple question of why would...

...the Obama admin want to get caught up with managing the stupid banks and what the difference in net effect from nationalization and what they are trying now along with why he thinks the bank MBS assets are worth 0 when they have less than a 30% default rate on the sub-primes not even factoring primes and alt-a's.

Good post, someone should send it to em...

[FrenchieCat]

8. That is why Krugman may right, if all things were perfect....

and in that way, he is almost crossing the line
with his insistence of nationalization as the only way to go.
Unfortunately, with is own theory on how to fix our mess,
He stops at the door. He doesn't bother to come in.

That's why he could argue for a 2 trillion stimulus package,
and not argue about the political difficulties associated with such.

It is very easy to come up with solutions in a world void of unintended consequences.

It is like those who argued for the invasion in Iraq,
and didn't see that in the end, it only strenghtened Iran.
They didn't see it coming,
because they didn't bother look that far.

And it is why Krugman didn't see why Obama had to be the Next President,
and didn't see the goodwill potential that Obama brings to our global well being,
which of course includes economics.
Hillary could have done a good job,
but she still would have the stench of Bill's presidency on her....
and unfortunately, as much as the world loves Bill and Hillary Clinton,
his legacy in the realm of economics as it relates to some of the bills that he signed,
would still affect what needs to be done.

One only has to trace the international steps our new administration has made in
in who they have contacted, the visits they have been made, etc....
We are a country in full diplomatic mode for the exact reason of our economic well being.
It is the reason that Hillary, with her knowledge of economics, was chosen as SOS.

[Hippo_Tron]

74. Dupe n/t

[ArchieStone1]

6. Nationalization can be termporary

I think Krugman once advocated nationalizing troubled banks temporarily until their situation improved.

[FrenchieCat]

10. That still doesn't answer the issue I raised about potential problems with personnel,

which would be a front loaded initiative.

If you think for one minute that the current management would be allowed to stay in place,
with some kind of Gov. director appointed, you aren't seeing what I'm seeing,
when folks are getting into buses and taking tours of AIG employees' homes.

What the bonus has done is tainted not just the top top management, it has tainted all of management, period.

The fact that it is the london office of AIG that was most active in selling insurance on the derivatives to the foreign market, means that middle management was implicated.

It's like the CIA employees who did the torturing vs. the administration who ordered it.
It would be easy for the media to take them all to the woodshed.

[Odin2005]

11. Great analogy.

[uponit7771]

27. To what end? The same thing Obama is doing WITHOUT nationalizing them? One of the reasons...

...you nationalize the banks is to get the bond holders off the banks back cause the government isn't going to pay the bond holders crap and the equity holders get less than crap.

Since you have the bond holders off their backs you can then start getting the bad assets off their books by either selling them for cut rate prices or just taking them as a loss for the tax payer to pay.

The latter can't be done with MBS's CDO's...cause there are TRILLIONS of them`

[FrenchieCat]

35. I haven't even gotten into the cost of nationalization!

If folks thinks that what Geithner has in mind is throwing money at the banks, nationalization adds the burden of moral responsibility to the equation. It certainly ain't even close to free....in fact, it is likely the most expensive of all of the scenarios. And the worse part about it, you don't know if in nationalizing a few, you don't start a dominoe theory via a run on banks that would end up costing twice as much as what might be originally projected.

[CTyankee]

84. Picking up on the cost here, do you think that would effectively end any talk of

putting financial resources behind reform of our health care system? Because if so, that would be yet another unintended consequence of nationalization!

So glad you have outlined this for us. I have been really puzzled over this whole argument and it is posts like this one that has helped crystallize my thinking better...

[ProSense]

7. I don't see that as a case against nationalization.

It just shows that nationalization is a complex issue.

It's hard to say where people would fall politically. Lindsey Graham has said nationalization should be on the table, maybe because he wants to see foreign investors bailed out or it could be a political ploy.

Still, if the argument against nationalization is going to be made using political implications, specifically saying no to foreign investors, I think it could play into the Dems hand.

Not that I think the Repubs wouldn't be screaming socialism, but I don't think anyone knows how it would play out. Also, the public is really angry at the banks.

The legal and financial ramifications are more the real considerations than the political.

[FrenchieCat]

12. The Republicans calling Nationalization

would have their hands clean in case of an Obama administration scandal.

They would blame it on incompetence of the handling of the process,
not the process itself. That personalizes it more as Obama's fault,
than on the fault of nationalization.

So it would make sense that they advocate it.

[FrenchieCat]

15. Still waiting for the pro-nationalization folks to weigh in.

I'm eager to debate.

[rug]

18. Purely speculative and hypothetical.

On second thought, purely speculative and hypothetical.

[FrenchieCat]

20. and Iraq was going to be a cakewalk!

as I stated in my op,

"Now, folks can swipe this away as being purely speculative and hypothetical and simply the tale of someone seeing the worse as the inevitable. But then I ask these same folks to think about it again, and tell me why there is no possibility for this to be the case, whether via the issue I raised of staffing issues, or other potential problems that I just haven't listed."

So I ask, why there is no possibility for what I describe to be the case?

[FrenchieCat]

19. !

[uponit7771]

29. Exactly, not a lot of people want to back Krugmans theories just his opinions. I don't think Krugman

...is off he's just arguing against better and best...the same goes for the "let them fail" folk too IMHO because they don't realize the extent of the damage the "deregulate everything" environment in DC has brought us.

Letting them fail wont just take down the US banking system

[FrenchieCat]

30. Exactly.

[stillcool]

26. How many corporations are we talking about..

Why are global corporations only blackmailing the United States?

[FrenchieCat]

31. We don't know, but there is also the "Bank run" that one would have to be prepared for.....

Just making the call would be excruciating, as what is done initially would have other unintended consequences to how investors and the market would react. There are many unintended consequences, I just mentioned an obvious easy one that is based on politics, and therefore is somewhat predictable.

[quakerboy]

36. a catch

"Nationalization creates a political problem. Once the government buys a company, it is financially and morally responsible for its debts. It puts the U.S. government in the position of either using taxpayer money to bailout foreign investors, or telling foreign investors, no, the richest country in the world is not going to pay its debts."

And yet, we seem to be doing exactly this anyway. Or at least, thats the main argument I keep hearing. "we have to make sure china is paid back, or they won't keep investing, and then where will we be". So we should make sure that they are paid off so that we aren't stuck paying them off?

[amborin]

37. but we've ALREADY reimbursed foreign govs..and their banks...

we've bailed out the HUGE bank of scotland

and the recent AIG bailout's proceeds went to several foreign institutions....

so we've already been bailing out foreign banks and so forth

[FrenchieCat]

41. The difference is the moral obligation and the responsibility

becomes chiefly that of the Government, and anything and everything that they do equals to what it is that the government is doing. If you think Wall Street and the government are in bed together now, you ain't seen nothing like once the bank are the government.

In a capitalistic society, banks might be the last thing that you want ran by the government. Utilities, hospitals, social services, police, fireman, schools, fine. Banks that need to make a profit as part of economic growth; I don't think so.

Again, unintended consequenses is a high risk game. Add to it players that want it all to blow up in our faces, and that's a cocktail I'd rather give a pass to.

[amborin]

43. we've already acted out of moral obligation & responsibility to give big $$$ to foreign banks

there are also dire predicted and unintended consequences of NOT nationalizing the banks

we have a real world example before our eyes: Japan

ps: the gov't can't be any worse at running the banks than the current bunch of idiots, right?

[girl gone mad]

61. That's a right wing canard.

nationalization doesn't mean the government will be running the banks. We've been nationalizing 2 to 4 banks a week for the past few months with no problems, whatsoever.

[amborin]

38. also: the banks would only be nationalized for a very short time, then privatized again

there are unintended consequences attached to EVERYTHING in the universe!

every action and decision, large and small, carries them

[FrenchieCat]

44. Well, it appears that Barack Obama has a different way of looking at it.

When Mr. Krugman runs for President, then he can become responsible for all of the unintended consequences he wants. At that point he can sink or swim on his own ideas....but till then, nationalization is not the best of all of the ideas out there; simply one of them that may look most practical on its face, but in actual practice considering the magnitute, the political landscape, and the corporate media, are more than a calculated risk; it would be a time bomb....even if temporary. Explosions don't take but a second.

[brentspeak]

42. LOL. You're quoting Tyler Cowen from Marginal Revolution?

Tyler Cowen is one of the biggest cheerleaders for unregulated free-markets on the planet. Before the financial industry imploded, he made a jackass of himself writing a dismissive review of Kevin Phillips' "Bad Money", which anticipated the implosion. Cowen, as director of the Mercatus Center, has Wendy Gramm as the center's "chairman of the Regulatory Studies Program". If you're getting your economics knowledge from Cowen, no wonder you're such a shill for Obama's let's-not-nationalize-the-banks-but-instead-let's-continue-stealing-from-the-taxpayers plan.

[FrenchieCat]

45. I believe that the overwhelming majority of my op was written by me.

Unlike when you post your one liner or snarky "Hating Obama cause its cool" articles from 3rd party sources. and unless you can contest what they wrote that I quoted (cause I don't a shit about what else they might have written), I'm not sure what makes you boss.

Wait, wait, I know.......kills the messenger not the message, like you always say?
Is that right, Mr. Brentspeak Naderite?

Why don't you give me your argument as to what nationalizing the financial institutions and AIG does that's better than the Geithner plan that isn't out yet? If you could please provide cost, time and method to process with some details....that would be helpful.
Thank you.

[Political Heretic]

78. So did you, or did you not quote Tyler Cowen?

Simple question, which says a lot about the merit of your argument. Whether it was "mostly written" by you or not.

[dkf]

48. I'm terrified that nationalizing these entities will make us responsible

to pay up for their stupidity.

No Freaking Way I say!!!

I think we need to evaluate the debts, and figure out which ones lead to systemic failures and which don't.

I like the new authority Obama is seeking to put us as conservators over troubled firms. I have been grumping about some things he has been doing, but this is a winner for me.

[FrenchieCat]

49. I also like the regulatory framework that would extend to foreign

markets.

I think this can work, although it won't be cheap....but the cost is out there (instead of hidden), along with prospect of returns, and it doesn't shock our system in a way that nationalizing the financial Markets, which has never been done before (so there is a lot of unknown) in this country could easily.

[dkf]

50. Nationalizing would be too big anyway.

Its not feasible and just kind of a lazy argument IMO. Kind of a SCREW THEM ALL attitude.

[FrenchieCat]

52. I just see so many risks seen and unseen......in Nationalization,

It's literally a short cut with many dark alleys that we don't see yet.
And it is these unseen alleys that I fear the most.

We have only so much time to get a lot done.....
Yet, nationalizing the bank would be about as far as we'd get.

and yes, I have a feeling if Obama followed the Nationalization scheme,
we would be saying hi to President Mitt Roomney in 2012.

[dkf]

56. Well we will be buying all the bunky assets off the banks.

If we need to nationalize on top of that we truly will be screwed.

[FrenchieCat]

70. If we were going to nationalize, it should have been done on the onset

before giving them all that money anyways.

[dkf]

71. Yup.

We are past that point.

[Political Heretic]

79. Do you ever offer any evidence based arguments? ever?

Or is your whole thing just fear mongering?

Don't nationalize cuz somethin bad might happen! I dun no wat it is but it wuld be bad!@!!11

[girl gone mad]

62. You don't seem to get it.

We're already on the hook for all of these debts, but we have no control. What we've got under the current plan is all of the downsides of nationalization with none of the benefits.

[dkf]

73. Did you see Obama's new program?

Obama Proposing New Resolution Authority to take over Troubled Institutions

A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.

Administration officials believe this new power will save taxpayers money and avoid the type of controversy that erupted last week when insurance giant American International Group paid employees of its troubled financial products unit $165 million in bonuses even though the company had received more than $170 billion in support from the federal government.

Under the new powers being sought by the administration, the treasury secretary could only seize a firm with the agreement of the president and the Federal Reserve.

Once in the equivalent of a conservatorship, the treasury secretary would have the power to limit payments to creditors and to break contracts governing executive compensation, a power that was lacking in the AIG case.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8283221&mesg_id=8283221

[LittleBlue]

51. ABSOLUTE NONSENSE. And here's why

Nationalization through seizure may present those consequences; nationalization through purchase of their commons stock does not make the US responsible for ONE RED CENT of the company's debt!

Corporations are a separate legal entity from the owner. The owner is not required to pay the debts of the corporation.

And this nonsense of moral obligation is thrown in there blatantly because the author either knows this, or is protecting himself because he does not know the law.

[FrenchieCat]

53. But morally, considering that the debtors are foreign countries,

we would be required to pay the debt, otherwise, like the title of this op states,
there would be unintended political consequences. Why do you think my op is titled as such?

There is no such thing as a short cut...and that is literally what Nationalization is.

and even Mr. Krugman doesn't guarantee that Obama's plan wouldn't work,
and doesn't guarantee that his would either.

[LittleBlue]

54. With respect, not at all

Investors know that investment in a bank holding corporation could very well result in a complete loss. In fact, payment of debt on behalf of a corporation brings up a host of legal and (especially) tax issues, and in the course of normal business among large corporations is unheard of.

Besides, what debts are the article writers talking about? The creditors are no better or worse off regardless of whether we own the corporation.

[FrenchieCat]

55. So what happens when you nationalize an insurance company?

You believe that foreign investors will accept a loss with it coming from the American Government?
I expect a whole lot of pissed off countries instead.
What's our national debt again?
Who does the US government owe this debt to?

[LittleBlue]

57. The debt is not from our government, it's from the corporation!

Buying the common of an insurance company does not make us liable for that company's debt; not one dollar, not one penny is payable by the majority shareholder.

Again, this is true of any corporation. The other governments of the world know the laws of business; this separate owner-corporate body legal separation exists in every modern country.

If we buy the common, we do not owe one penny, anymore than adopting a child makes the adopters responsible for the birth-mother's debts.

[FrenchieCat]

66. I believe that there are too many unknowns in what you suggest.....

There are many brands of nationalization out there,
and the devil is in the details, and the confidence that it would instill,
as far as future investments, especially from other countries.

So as my op states,
there are too many unknowns that come with nationalizating our financial systems
here in America, i.e., unintended consequences.

Nationalization tends to do away with the profit driven aspect of our financial system,
and I think that would be a problem in remaining competitive in the near future.

And so I prefer Obama's plan.

Thank you for the debate.
I do appreciate it.

[LittleBlue]

72. Yes, I appreciate the debate too.

Frankly, I've only ever hoped for President Obama's success, and I don't criticize his economic team out of malice. I honestly believe they are doing him a disservice that will cost him politically.

Anyway, I appreciate the spirited but always polite debate from you, Frenchie.

[girl gone mad]

64. No offense, Frenchie..

but you don't seem to have the first clue what you're talking about.

I think if you took a break from the incessant cheerleading and read up on the subject, you wouldn't make as many inaccurate statements.

[FrenchieCat]

69. Yep. I don't have a clue.

I'm no expert, that's for sure.

And you? What's your excuse?

[dkf]

58. I heard we are keeping ownership of AIG below 80% because

if we exceeded that we become responsible for all their debts.

Is that wrong?

[LittleBlue]

63. Yes, it is wrong.

Basically, in accounting, you have to perform certain GAAP requirements when presenting a balance sheet.

If it were 80% or above, this would require the consolidation method, a huge headache that the government wants to avoid. While they would be consolidated for financial accounting purposes, legally the debts are separate.

[FrenchieCat]

68. AIG is technically nationalized......we just don't call it that.

that's the reason for the 80% as opposed to 100% possibly.

[empyreanisles]

59. Obama: "I will not govern out of anger".

Most of the people here pushing nationalization are just angry about giving more money to Wall Street & Associates. Well guess what, everybody is!!! It doesn't change the facts as they are: This is a complex problem and the solution will not be pretty.

Unless we fundamentally change the way money flows in this economy, banks will remain king. And banks must survive. Maybe you've got lots of cash or gold bars stored away and can survive economic upheaval/ anarchy. This is not the reality for most Americans and The President has a responsibility to those people.

There will be many lessons learned from this will all the dust settles.

[girl gone mad]

65. There's no truth to that, whatsoever.

Nationalization is simply the most equitable solution.

[girl gone mad]

60. Where have you been the last 6 months?

All of the sudden you want us to believe you have some expertise on the subject?

[FrenchieCat]

67. No, I"m no expert, nor have I ever claimed to be one.

Why, are you an expert?

[Political Heretic]

80. Yes.

In point of fact.

So why should I care what you think?

[Hippo_Tron]

75. Here's how I view Krugman's nationalization plan

It is a good and well supported idea and it may indeed work. But it's no more proven than any other idea at this point. We're in uncharted waters and anybody who claims that they have THE solution is full of shit. Krugman has a solution, but he doesn't have THE solution.

Obama's only choice is to do exactly what FDR did: Try something and then if it doesn't work try something else. Krugman and some others are preemptively calling Obama's first try a failure before we even get to see the effects. If it does indeed fail then I'm sure Obama will be more than willing to try something else, possibly along the lines of what Krugman is proposing. But judging something as an error before finishing the trial is no way to do trial and error.

[yowzayowzayowza]

76. 'Bout matches my rithmatic.

How much of Citigroup do the Saudis own? If told their interest were worthless despite the value of the underlying business and a lack of fault on the Saudis part, they'd be likely to wanna leverage their oil interests to recoup their illegitimate losses. Also agree with the deleterious longer term effects on the global Treasury Bond market of nationalization.

Nationalization certainly shouldn't be our first choice, imho.

[Political Heretic]

77. Wow. That's the most pathetic argument against nationalization I think I've ever seen.

Seriously Frenchie, there ARE actually some fact-based arguments out there against bank nationalization. I would think you could at least steal from those.

You write this massive tomb that simply says this: "the answer is increased potential for unintended consequences"

Oh wow - we shouldn't nationalize banks because there might be something unforeseen in doing so? You don't fucking say. Not like, there might be something unforeseen in handing wall street cronies fucking blank checks and "hoping" they'll do the right thing. Yeah, no possibility of something "unforseen" in our current faith-based approach to fixing the economy.

On the other hand, you have working models - more than a few of them - where nationalization is a proven working system. Not only does it work, it works better that what we've got. Then on top of that, you've got very smart people, more than a few of them, although Krugman seems to be the point man for everyone's "why do u h8 Obama!?!" cries, who are jumping up and down shouting that we are going in the wrong direction.

Why should we care what they say? Because so far, they've been goddamn fucking right every single step of the whole fucking way. How long to we keep making it about Obama vs. smart people instead of making it about who has been consistently right about this economic mess and whether or not maybe we should start fucking listening to those people.

Should I go ahead and give you a better argument against nationalization, just to help you out or do you want to go find it on your own?

Cause I can... just to even the playing field a little bit. Think of it like a golf handicap.

[FrenchieCat]

81. Well, I think that with your superior intellect and clear understanding

versus me not having a clue,
I am humbled by your judgment,
and will take whatever assistance you might see fit in giving me.
I thank you very much for your generosity
in making a better argument against Nationalization,
as I realize that there are many.

Thank you again.

[Political Heretic]

83. Sure thing. One of the better arguments against it is this:

The scale.

First you have to clarify exactly what is being talked about when the word "nationalization" comes up. Because if your talking about targeting purely troubled banks, after doing some sort of an assessment, and putting them into a kind of recievership designed to be temporary, before either liquidating and selling the bank back into the market to other healthy banks or making the bank sound and then putting it back into the private sector - that's a little different, but is still being called "nationalization" by some people...

If, on the other hand, you are talking about true full institutional level nationalization as a permanent thing - then the best argument has to do with the scale of the nationalization, and the cost associated with nationalization for a country of 300,000,000 plus people.

[PM Martin]

82. Et Tu Geithner?