Lindsey Graham Explains Why Nationalization ‘Is An Option,’ ‘Needs To Be Put On The Table’
Lindsey Graham Explains Why Nationalization ‘Is An Option,’ ‘Needs To Be Put On The Table’
Today on Meet the Press, Sen. Lindsey Graham (R-SC) reiterated his support for nationalizing troubled financial institutions:
The question becomes, when are you throwing good money after bad? When would it be better to take the bank over, break it up, sell it off, and better manage the bad assets versus just infusing it with capital? That to me is an option, call it what you like, that needs to be put on the table. [...] When the stress tests are administered and you can see that this bank is a zombie bank, I think there’s growing political will that we’re not going to keep throwing good money after bad.
Watch it:
Graham’s message echoes that of Kansas City Fed President Thomas Hoenig, who criticized the Treasury Department last week for nationalizing institutions in a “piecemeal” fashion. Like Graham, he called for taking over, breaking up and selling off “failed institutions that have proven to be too big or too complex to manage well.”
As Paul Krugman wrote, nationalization is a way to make it “politically and fiscally feasible to put in enough capital to revitalize the system.” Indeed, a new Newsweek poll found that 56 percent of Americans favor bank nationalization, but there’s no telling how long the public or lawmakers will stand for infusing funds over and over, while leaving the institutions under private control.
Treasury Secretary Timothy Geithner has said that nationalization is the “wrong strategy for the country,” instead devising a plan based on the potentially faulty theory that the toxic assets plaguing the banks are merely stuck at an “artificially depressed value.” But Graham is right in thinking that the stress tests will confirm the insolvency of some institutions, at which point Geithner’s plans will need a serious redesign.
16 Responses to “Lindsey Graham Explains Why Nationalization ‘Is An Option,’ ‘Needs To Be Put On The Table’”
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I can’t help but think that part of the reason the Obama administration is avoiding the nationalization idea is purely political.
Until more prominent elected Republicans than just Graham talk favorably about nationalization, the far-right would go berserk with their “socialist” branding campaign.
I think they have effectively shut down the bank nationalization effort until a good number of Republicans publicly commit to supporting Obama on this, he needs to hold off.
Sad that the far right has hijacked this most effective (if distatsteful) option for a meaningless rally-cry sound bite.
March 8th, 2009 at 1:40 pmTim thinks public-private partnerships are the way. I’m not defending him, but he’s made his solution clear. Taxpayers loan PPP’s up to $2 trillion to save flagging banks.
Ironically, John Podesta said much the same thing (about leveraging private money) at Vice President Biden’s Middle Class task force session in late February. It’s on the WhiteHouse.gov blog. Funny, his talk didn’t make TP or WR.
President Obama’s $27 billion National Infrastructure Bank is for infrastructure PPP’s. The Obama team is remarkably consistent, as much as I don’t like public guarantees for private equity underwriters. Why should they get cheap loans and long term 15% profit guarantees?
March 8th, 2009 at 3:25 pmTreasury is scared of upsetting existing bank equity holders further. Like Enron and Worldcom, Lehman, Fannie, Freddie, WaMu, and AIG shareholders bit it hard.
President Obama and Treasury Chief Geithner are doing all they can not to leave stockholders with zero.
Lindsey Graham doesn’t mind it, he’s a Republican. His big money donors stand ready to buy a less junky bank on the cheap.
March 8th, 2009 at 3:36 pmHow can taxpayers pay thee banks? Let me count the ways:
1. Direct capital infusions
2. Equity injections-preferred stock, often converted to common w/no dividends
3. AIG counterparty risk unwinding-The WSJ reported banks paid by AIG since the insurer started getting taxpayer funds were: Goldman Sachs Group Inc, Deutsche Bank AG, Merrill Lynch, Societe Generale, Calyon, Barclays Plc, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, and Lloyds Banking Group.
For more on #3 go to:
http://www.reuters.com/article/newsOne/idUSTRE52624P20090308?pageNumber=1&virtualBrandChannel=0
March 8th, 2009 at 4:05 pmSo Senator Lindsey Graham, how much is left to unwind, if nationalization is a desirable option? If it’s mostly done, nationalization is a great way to zero out existing equity holders and make room for new financiers, private equity and hedge funds.
If it’s nowhere near done unwinding, how much is left, 80%, 50%, 30%? Speak up Senator, I can’t hear you.
March 8th, 2009 at 4:08 pmIf you are looking for why they will not nationalize, take Citi and look who the stock owners are. You will see some major middle east players and I fear this is a major reason why they will not nationalize Citi.
March 8th, 2009 at 5:12 pmAllow me to explain why this is a straw argument by Graham.
Its because it presupposes that the only option other than nationalization is to “throw money at the banks”.
He acts as if he’s ignorant of recent history. He’s not.
He is fully aware that just 20 years ago we were in a similar crisis, and we were able to manage the banks and liquidate failed banks and assets by creating a government entity similar to the FHLC, the RFC (Reconstruction Finance Corp) and the FDIC. It was called the RESOLUTION TRUST CORPORATION, and it did exactly what Graham is calling for.
It managed failed banks, liquidated banks and assets and managed the redistribution of those assets.
And it didn’t require Nationalizing the banks!
In fact, in October 2007 three men that worked for different parties and different Presidents, Paul Volker, Eugene Ludwig and Nicolas Brady wrote an article entitled “RESURRECT THE RESOLUTION TRUST CORPORATION”, calling on President Bush to use the successful tactics employed by Bush 1 to deal with the Savings and Loans crisis of the 80’s.
Mr. Brady was U.S. Treasury secretary from 1988-1993. Mr. Ludwig was U.S. comptroller of the currency from 1993 to 1998. Mr. Volcker was chairman of the Federal Reserve from 1979-1987. These men are not amateurs and in the article they called on Bush 2 to bring back the RTC to do the same thing it did before.
1. Liquidate failed assets
2. Redistribute the residual wealth
3. Inject massive amounts of capital into healthier institutions.
4. Impose federal oversight over the salvaged institutions to ensure proper use of federal funds for LENDING.
The RTC was effective, and it stabilized the economy and put America back on a forward moving track. And it did this BEFORE the tech boom of the 90’s, which came in on the heels of the RTC, and took the economy off to heights never anticipated.
So why isn’t Lindsey Graham telling us this?
Why is he instead saying to President Obama “hey, you gotta nationalize”?
Why do you think?
Because he wants to say it was on a democrats watch, that capitalism failed.
That’s why.
We have the answer.
Bring back the RTC.
Don’t nationalize.
Bring back the RTC and let the RTC manage the liquidation and redistribution of assets.
Just like we did 20 short years ago.
March 8th, 2009 at 9:27 pmNo what’s sad is you think that’s the only effective option we have.
In the 80’s we did everything they are crying for nationalization to do, and it didn’t require nationalizing the banks.
It was called the RESOLUTION TRUST CORPORATION, and we can do it it again.
That is if anyone is educated enough to remember what we did 20 years ago.
March 8th, 2009 at 9:31 pmGeithner is spinning. Housing prices are not “artificially depressed.” Prices are set by the market. Right now, the market doesn’t place much value on houses. A house that once sold for $2 million in a neighborhood of multi-million dollar homes is only worth what a buyer is willing to pay. Not $2 million. That’s not false. It’s a fact.
If every house on your block is in foreclosure, good luck getting a penny more than the most comparable house on your block. That is the value of your house, assuming it’s for sale. Chances are, it has much greater future value and much greater value to you as a home or rental than its actual market value.
March 9th, 2009 at 7:26 amMy post states obvious facts. The only reason I posted is because I find it so irritating that politicians spin such stupid points. We are not idiots. Do not pretend that the emperor has no clothes. Deal in facts and treat Americans with respect as we sort out the best way to resolve this financial quagmire.
When politicians tell stupid lies they lose credibility. Right now, the last thing the country needs is a “problem solver” who lacks credibility.
March 9th, 2009 at 7:32 amIf the real estate actually had the value the buyers paid and if the value of the buyer’s assets actually supported their ability to pay, we wouldn’t be in half of this mess.
The inability of banks, mortgage companies, regulators, etc. to recognize value and assign worth is exactly the problem . . . don’t start talking fairy-tale values now.
March 9th, 2009 at 7:36 amThe worst banks should be creatively nationalized by the FDIC.
March 10th, 2009 at 3:15 pmHive off a solid balance sheet and launch this as an ipo under new management. Take the remaining assets and send them to bankruptcy court. Strap the nationalized banks with some floating-rate preferred shares to keep them on equal footing with the next marginal non-nationalized banks. The re-floated banks and bankruptcy courts can manage the assets. We do NOT want a return of the RTC – it was a beehive of sweetheart deals.
Nonsense.
That’s the lie being spread by the bankers trying to cover their collective butts.
The truth is Americans WERE paying their mortgage. Go look at the actual foreclosure filing figures for 2007.
They were ONE percent.
ONE.
That means 99 Percent of Americans WERE paying their mortgages.
The truth is due to deregulation lenders were allowed to estimate their own risk, and thus they rolled Sub Primes in with the Primes which underestimated their risk and thus they didn’t have sufficient capital to cover their losses.
So when the naturally increased amounts of losses came in (foreclosures doubled, from half a percent to a single percent because more high risk loans were being made) from the Sub Prime loans lenders found themselves without sufficient capital to cover their losses, which is why CountryWide collapsed.
So, they lied. They tried to place the onus for the problem back onto the heads of the people, and off their own.
And we, dumb sheeple that we are, keep helping them sell it.
The truth is the people weren’t borrowing outside of their means.
The truth is, the LENDERS were LENDING outside of theirs.
March 10th, 2009 at 4:50 pmMalcolm Says:
The worst banks should be creatively nationalized by the FDIC
That’s not the role of the FDIC and even it it were, it wouldn’t “nationalize” the banks.
The FDIC is NOT a branch of the Federal Government.
It is a government owned CORPORATION.
March 10th, 2009 at 4:51 pmSimply bring back the Resolution Trust Corporation, and let that manage the failed banks.
You know, like we did 20 short years ago?
It worked great. So why not try that again?
:|
It was in the papers….
March 10th, 2009 at 4:55 pmAnd as for the “sweetheart deals”, we’ll they sure were sweet.
The economy rebounded with a vengeance thanks to the creation of the Resolution Trust Corporation.
It worked then. It will work now.
March 10th, 2009 at 5:00 pm