Glenden BrownGovernment Ownership of Banks
Robert Reich again on the unintended consequences of the wingnut habit of deregulation:
Over the past thirty years, the U.S. government has dismantled the system of regulation the nation instituted to prevent the sort of wild speculation that preceded the financial meltdown of the Great Depression. The last piece to fall was known as the Glass-Steagall Act, a Depression-era firewall intended to separate commercial banking from investment banking. In the late 1990s, my cabinet colleague Bob Rubin joined Fed chair Alan Greenspan to get Congress to repeal Glass-Steagall.
Now we’re witnessing another financial meltdown, also fueled by speculation. Hopefully this one is not as serious as the one that occurred in 1929. But it does require us to rethink the importance of sensible financial regulation. Perhaps the pendulum of financial deregulation has swung too far.
Paradoxically, the primary response of governments — both here in the US and in other advanced nations whose financial markets are also frozen — isn’t to rethink regulation. It’s to subject financial institutions to government ownership . . .
As their balance sheets weaken, America’s big financial houses are getting bailed out by selling out. It’s only logical, from their viewpoint. American banks need the cash and oil-producing and East-Asian governments have it. Yet there’s no end in sight for the credit crisis, and Middle Eastern and East Asian “sovereign wealth funds” are in the process of owning a larger and larger portion of the global banking system. These funds are growing by more than a trillion dollars a year. At this rate, they’ll BE the global banking system.
The problem is, government ownership doesn’t work. Governments are lousy at deciding where profits can be found. They’re liable to make decisions based on politics rather than profits.
It’s the biggest irony in financial history. Decades of U.S. government deregulation of Wall Street has reaped a whirlwind of irresponsible speculation. It’s now ending in a financial meltdown that’s being remedied by government ownership, with all the strings that come with government ownership. And it’s not even OUR government that’s holding the strings.
March 5th, 2008 at 8:02 pm
This is what happens when we run persistent trade deficits. When we encounter periods of excessive debt, we have to rely on foreigners to bail us out because they have the dollars.
Our consume-like-there-is-no-tomorrow mentality has placed us in this situation. If we focused more on production instead of consumption, we wouldn’t be in this mess. Our zero-to-negative savings rates are the direct cause of our trade deficits.
The irony here is that we would end up consuming more in the long run if we produced more in the short (and long) run. One day, and it may already be here, we’ll find that people in exporting countries who curtailed consumption in order to invest in production now have the best of both worlds: high levels of consumption underwritten by their exports as opposed to our approach of high levels of consumption underwritten by debt.
We can blame the Republicans, Democrats, Wall Street, the media, Halliburton, and Roger Clemens, but at the end of the day we need to blame our selves. We are the problem we have been seeking.
March 5th, 2008 at 9:13 pm
There is a word for government ownership of banks. It is called Communism.
March 5th, 2008 at 9:17 pm
Ken did you actually read what I posted?
March 5th, 2008 at 10:24 pm
Andrea; we have the benefit of Welshing on the loans, and anybody with anything to say, has bomb bay payload to look forward to, to remit, PAID IN FULL.
The US Dollar is backed by the promise of Death in our current incarnation.
Ask anyone who we owe money to, that’s brown, without a nuke.
March 6th, 2008 at 9:43 am
Andrea - I think you are both right and wrong - at an individual level each of us needs to examine our consumption of consumer goods but at the level of government policy, we need to change the way we legislate. Our legal system creates incentives for people to overspend then use their home equity to bail themselves out and get a tax write off. We make decisions based on politics rather than research and facts. We build our cities in such a way that using public transit is nigh on impossible. It’s a huge problem that requires attacking it from many angle at once and that’s tough.