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Why are conservatives refusing to lead on nationalization?

Submitted by johnson springs on Tue, 02/24/2009 - 11:01
in

In a post entitled "Mitch McConnell Gets It Right", Erick Erickson at RedState quotes Sen. McConnell:

I think nationalizing the banks is an absolutely wrong thing to do.

Erickson then comments:

Citibank does not need nationalization. It needs bankruptcy. Just because it has a bunch of foreign investors does not mean it should get out of the process a lesser entity would go through.

Can anyone tell me the point of this line of argument? I have no doubt that both Erickson and McConnell understand that nationalization or receivership is bankruptcy for banks. When he calls for Citibank to receive the same treatment a lesser entity would receive, is Erickson not calling for Citibank to be treated like IndyMac? And yet with the next breath he rules out the very process with which IndyMac was treated: nationalization.

By posing the false choice between bankruptcy and nationalization McConnell and Erickson effectively give Schumer, Geithner and Obama cover to service Democrat big donors at the expense of the taxpayer. How does this position benefit taxpayers, conservatives or the GOP?

Why are we throwing away the single best opportunity to demonstrate fiscal responsibility, financial credibility, political courage and most importantly relevance? All the while pushing the hands-down consensus best policy.

I'm really at a loss on this. What a coup it would be for the GOP to have economists from the right of Martin Feldstein all the way to Paul Krugman lining up to praise our leadership on this! But it's not going to happen.

Erickson and McConnell understand that IndyMac was nationalized. They understand it is very likely that Citibank is insolvent. Why then do they demure from leading on this?

If we are passing on this golden opportunity merely from fear of the term "nationalization" then we have lost faith in our ability to manage our message effectively. Let's call it pre-privatization, let's call it receivership, hell, let's call it bankruptcy. But whatever we do, let's call for it before the opportunity is lost.

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When I hear the word, "nationalizing" the banks...

Submitted by davidfarrar on Tue, 02/24/2009 - 20:58.

...I get the idea of the feds simply taking over the banks, all banks, and putting the likes of Barney Frank and Chris Dodd in charge of their operations.

Let's be clear, I don't consider any bank to be too big to fail. Let them go into bankruptcy. Sure, you can play games with the name, but never does the government own the assets of the bank in bankruptcy.

 

ex aninmo

davidfarrar

Are you comfortable with the way FDIC handled IndyMac?

Submitted by johnson springs on Tue, 02/24/2009 - 22:12.

Were you stricken with terror as the FDIC unwound IndyMac Bank, the fourth largest bank failure in our history? Yeah, I didn't really notice it either.

On July 11, 2008, FDIC placed IndyMac Bank into conservatorship. Over that weekend, per its standard operating procedure, FDIC created IndyMac Federal Bank which assumed control of IndyMac Bank's assets and secured liabilities including deposit accounts. IndyMac Federal Bank opened for business on Monday, July 14, 2008.

IndyMac Bank which still controlled its unsecured liabilities entered a Chapter 7 filing on August 1, 2008.

On January 2, 2009, the FDIC announced that it had approved the sale of IndyMac Federal to a privately-held thrift holding company for $13.9 billion.

During the course of conservatorship, IndyMac provided uninterrupted banking services to its customers and communities.

Also recognize that the FDIC has been seizing insolvent banks since its inception in the 30's. In the last year it has been seizing just under 3 banks a week.

Do you really need to be afraid of something that has been going so smoothly for so long without once disturbing you?

So, what's the problem?

When I hear the word, "nationalizing" the banks...

Submitted by davidfarrar on Tue, 02/24/2009 - 20:59.

...I get the idea of the feds simply taking over the banks, all banks, and putting the likes of Barney Frank and Chris Dodd in charge of their operations.

Let's be clear, I don't consider any bank to be too big to fail. Let them go into bankruptcy. Sure, you can play games with the name, but never does the government own the assets of the bank in bankruptcy.

 

ex aninmo

davidfarrar

When I hear the word, "nationalizing" the banks...

Submitted by davidfarrar on Tue, 02/24/2009 - 21:02.

Double entry --- sorry.

 

ex animo

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davidfarrar

Here is the problem with bank nationalization.

Submitted by chemjeff on Wed, 02/25/2009 - 05:49.

Strictly speaking, nationalization and bankruptcy are two different things.  This is what I think of when I hear the word "nationalization".  When communist countries nationalized their industries, they did so because the government purposefully wanted to suborn them to the will of the state.  The newly nationalized industries would be expected to promote the government's political agenda, and the government's managers ran the companies with the expectation of doing so for a long period of time.  By contrast, in a bankruptcy, government control over the company is temporary and (mostly) apolitical.  There is no expectation that the company will serve the will of the state.  Mainly, the government acts as a temporary agent to facilitate the restructuring or liquidation of the company.  In this sense, IndyMac was not a nationalization, it was more like a bankruptcy.  I don't have any real problem with the way it was handled, other than my underlying problems with FDIC insurance in the first place.

So if, by 'nationalization' you mean bankruptcy, then sure let's consider it.  If by 'nationalization' you mean 'receivership' a la IndyMac, then sure let's consider it.  But if you mean 'nationalization' as in nationalization, then forget it.

If you think Barney Frank and Chris Dodd should run banks

Submitted by Ironman on Wed, 02/25/2009 - 07:00.

then sure, nationalize them.

Once the Left gets control over the private sector financial markets, they will not relinquish control. Of course, this also suggests that within a decade or two, the world's financial center of gravity is going to shift from NYC to some European or Asian city with less onerous government involvement.