A market economy shouldn't subsidize risk investors who made bad bets. For the market to work properly, they MUST pay the piper. Nor should it protect the failed executives.
The 401(k) programs were a clever way to replace corporate pension systems, with a privatized retirement investment, similar to the effort to privatize Social Security. They have failed.
When a bank is insolvent, when its debts exceed its assets - the bank has already failed. The investors are already wiped out and attempts to subsidize their losses by pouring good money after bad is actually Socialism.
Here's the ONLY way out:
1) The FDIC selects a series of "too-big-to-fail" banks that are probably ALREADY insolvent, and run independent audits on them (how can we throw money around when we don't know where it will do good and where it will be wasted). We could start with Goldman Sachs, Morgan Stanley, CitiGroup, JP Morgan, BoA, and Wells Fargo.
2) Any institutions that are already insolvent and unsaveable or are so close to insolvent that the odds of saving them don't justify the expense, should be taken over by the FDIC.
3) Their management should be fired and replaced with independent financial experts from the Treasury.
4) The risk investors should be wiped out (they did bet on a loser).
5) The deposits and loans of the ordinary customers should be insured and protected.
6) The banks should be broken down into a number of smaller, more manageable lbanks so we never again can be blackmailed by a "too-big-to-fail" institution. The banks should be split into those that handle deposits and loans, and those that handle investment.
7) As smaller, healthier banks are created, they should be sold by the FDIC to new investors and returned to the private sector.
In real Socialism, banks would be nationalized permanently. Think of our type of nationalism as more like a temporary bankruptcy, receivership, reorganization, and return to the private sector.
The author may never have run a real business, living in his Ivory Tower, but he has also never run a business into the ground and caused an international economic meltdown. Also, it was in Ivory Towers, that the Milton Friedman/Ronald Reagan "Chicago School" economic model of a totally deregulated market, total privatization, and removal of trade barriers evolved.
Whenever Chicago School theories are tested in real-life, they fail. The Great Depression, the "Chilean Miracle," the collapsed "Iceland Miracle," and collapses in the Eastern European nations like Latvia, Lithuania, Estonia, and Russia, thanks to the advice of Robert Rubin.
After 30 years of growing influence of the Chicago School theories, and the last 8 years of virtually unchecked implementation of their policies, we and the entire world are teetering over the precipice of total economic collapse.
Quite and achievement for Ivory Tower economic theory based on misunderstanding the centuries
Not a Dirty Word
Nationalization is not un-American. We have a long history that proves it.
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Wall Street's problems have captured the attention of Congress, the White House and the media. But ordinary folks are wondering if anyone is paying attention to them. A look at how Americans are coping with the economic crisis.
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Talk of "nationalizing the banks" is in the air again this week, as President Obama hits the road to sell his recovery plan and Tim Geithner, the new chairman of the Securities and Exchange Commission gets ready to announce his rescue strategy for the nation's financial institutions. There's plenty to rescue. Bank of America—the country's biggest bank—saw its stock hit a 25-year low, while Citigroup is barely off the bottom it reached last month; even Wells Fargo—once thought the "safest" of the big banks—has lost half its value in the last 60 days. You might wonder, as many are, what's left for the government to "nationalize." But that may be the wrong issue.
Most Americans instinctively dislike the sound of "nationalization"—it summons up images of the Soviets, or the French, of inefficient factories, incompetent managers, bloated bureaucracies, long lines, and surly service. It's un-American, in short.
But pause for a moment: if government will do a worse job running the banks, the rejoinder is "worse than whom"? The bankers themselves? That's a tough argument to make right now. Fannie Mae—the mammoth mortgage lender the government took over last fall after its losses soared, actually operated quite successfully as a government-run agency for decades. Fannie got in trouble only after its charter (and executive pay structure) was jiggered, in a burst of "markets know best" fever, to create what amounted to a private company whose balance sheet was federally guaranteed. At that point, the smart guys running it set out to "maximize shareholder value" and not incidentally their multimillion-dollar compensation; disaster resulted. If anything, returning Fannie Mae (and its companion Freddie Mac) to straightforward government-agency status may be the smartest thing Washington can do when the time comes.
Another argument is that a move toward nationalization right now would drive away private investors willing to step in and take over the banks without further cost to the government. But no one's proposing an industry-wide takeover, and the big banks in the worst trouble are not only "too big to fail," but too big for private investors to buy at any sane price right now. In fact, to judge from the latest economic forecasts, we shouldn't be worrying whether nationalization of America's biggest banks will happen—but what kind of nationalization will occur when it does happen.
The truth is that the United States has a long and overlooked history of "nationalization," starting with the Northwest Ordinance of 1789, and then the Louisiana Purchase of 1803. Both acts put vast amounts of American territory in the public domain, at a time when land was far more valuable than currency. Even today, a third of all the land in the United States is still publicly owned, as are the continental shelves along our coasts, the airspace above us, not to mention hundreds of thousands of miles of roads and trillions of dollars' worth of other public infrastructure so essential to our private economy.
In World War I, the nations' railroads were successfully nationalized to sustain the war effort. In the 1930s, the Reconstruction Finance Corp. bought millions of shares in over 6,000 banks in order to rescue them. During World War II, government took control of the economy's entire pricing system for consumer goods—a more complex job than taking over several big banks—and did quite well at it, most economists agree. In the 1980s, the Resolution Trust Corp. seized hundreds of failed savings and loans in order to save the system. After 9/11, the government effectively nationalized the private-security firms at airports, and replaced them with the federal TSA.
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