Heartache: Greenspan backs bank nationalization

posted at 12:55 pm on February 18, 2009 by Ed Morrissey

Suddenly, Lindsey Graham’s a Greenspanian, and the wrong man moved.  Alan Greenspan told Financial Times that the US may have to nationalize banks as part of a once-per-century necessity.  It may be the only way to dispose of the toxic assets created by, er … other government interventions in the banking industry:

The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

Groovy.  Suddenly, nationalization is the new Snuggie.  It’s a new, hip blanket that gives the illusion of security.

Greenspan does warn that the process of nationalization matters.  Given that the world faces a huge credit crisis, the government has to nationalize the banks in a manner that doesn’t damage “senior creditors” of the banks.  Those creditors have to have money to lend elsewhere, and losing massive amounts of value in the banking debt they hold will further constrict the credit markets.  If the US and other governments can draw out the toxic assets without damaging these creditors unduly, then temporary nationalization could succeed in salvaging the economic infrastructure.

What does that mean?  The government absorbs all the losses.  That means you and me.  We did something similar with the Resolution Trust Corporation to settle the savings-and-loan collapse of the late 1980s, and managed a soft landing for everyone, including taxpayers.  However, that was on a much smaller scale than what Greenspan proposes here, and it will take much longer for those assets to regain value, if they do at all.

Get ready for it, though.  With Greenspan on board, there aren’t many voices left to fight it.

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Comment pages: 1 2

Now this is where all conservatives need to step up and SMACK down greenspan.

jcila on February 18, 2009 at 1:45 PM

There has not been much love for him in this thread.

We hereby summon Andrew “Jacka**” Jackson to kick Greenspan’s arse.

WashJeff on February 18, 2009 at 1:49 PM

“I think that when you spread the wealth around, it’s good for everybody.”

-BHO

BPD on February 18, 2009 at 1:39 PM

Synergy is when we all go under, together.

Entelechy on February 18, 2009 at 1:50 PM

This recession/depression started with real estate and spread to the banks. Until we fix our banking system, we won’t get out this mess regardless of how many trillions are thrown at it.

The banks are hiding bad paper and until the bad paper is valued at market, no one will trust the banking system including the banks themselves.

What is being proposed can finally put a value on these assets. The fallout will be that some banks fail and large ones at that.

The idea of nationalization isn’t to set up a motor vehicle department or post office like entity to cash your checks and give you loans. What is being tossed around is an orderly way to value the bad assets and banks that are no longer viable.

The plan should…

Wipe out shareholder equity and bond obligations. This is better than transferring the bad assets to the taxpayer.

All assets should be marked to market. None of this mysterious mark to model concepts.

All upper management of the banks should be replaced.

Good assets and operations should be sold off to healthy/healthier banks to defray the cost.

Once the banks have purged their mysterious toxic paper and incompetent management, what is left should be sold off. At this point, the “nationalization” ends.

It’s similar to what was done in the S&L crisis of the eighties but on a much larger scale.

A program like this is better than anything that is on the table now. It focuses on the core issue of our banking system being broken.

What we need to look out for is the taxpayer being left with the “bag” as opposed to the shareholder and that current management will be replaced. This is where the funny business can fester.

voiceofreason on February 18, 2009 at 1:50 PM

voiceofreason on February 18, 2009 at 1:50 PM

And whom should manage this plan? Follow-up question, why should we trust this person or group?

WashJeff on February 18, 2009 at 1:54 PM

Looks like Greenspan has finally gone completely and totally senile.

He started off as a Randite, and went downhill from there.

Kristopher on February 18, 2009 at 1:55 PM

The bursting of the real estate bubble may have started the downfall of the economy, but the main reason for the stock market crash was due to the use of credit default swaps among the big investment banks based on leverage ratios upwards of 30:1. The reason why the big banks are scared of marking to market is that they’d all be insolvent. Hence, the need for the government to step in and deal with making the best of a bad situation.

starfleet_dude on February 18, 2009 at 1:56 PM

Capitalism is a system of profits and losses. The filthy rich corporations and individuals, in the past few years, didn’t call the country and say “here, we have a surplus of wealth, you have some of it”.

Now, they’re all pulling violently at the national tit, and the morons like Emanuel and Greenspan, also the boy king Obama, are ready to oblige.

Let them go under. Otherwise the good companies and the honest workers and taxpayers are going to disappear. Then, all will be poor.

Entelechy on February 18, 2009 at 1:48 PM

Well said Entelechy.
If the truth be known, I think that last part is the true objective of our new Democrat overlords.

Maxx on February 18, 2009 at 2:00 PM

Hoovernomics didn’t work back in 1930 and won’t work now, and Greenspan is quite aware of that.

starfleet_dude on February 18, 2009 at 2:02 PM

And to all you Greenspan haters, get a clue. Guy is very smart. Don’t be reflexive idiots.

VolMagic on February 18, 2009 at 1:02 PM

The problem has been Greenspan’s easy money policies which brought us to the point we are at now. A lot of smart people (see L. Kudlow) mistook borrowed money with prosperity. These same smart people looked at recent economic history and extrapolated into the future; i.e., the housing market never goes down.

A lot of people including, unfortunately Captain Ed, do not realize that easy credit has inflated ALL asset prices for about 15 years and that we have a long way down before prices reflect income. (Hell, the S&P 500 is finally below the average P/E of 16 for the first time since 1991. That’s right, WE ARE AT THE AVERAGE!!! Stocks aren’t even cheap, yet.)

Bill C on February 18, 2009 at 2:06 PM

With Greenspan on board, there aren’t many voices left to fight it.

That’s the way Ed….advocate the loser mentality.

There are tens of millions of American voices that can fight it and defeat it. Only the willpower is lacking in America today.

That’s our real problem.

LimeyGeek on February 18, 2009 at 2:08 PM

The trick is to not go from an era of easy credit to an era of deflation. The 1930s were a terrible time and no one in their right mind would suggest such suffering is necessary for economic recovery.

starfleet_dude on February 18, 2009 at 2:08 PM

The bursting of the real estate bubble may have started the downfall of the economy, but the main reason for the stock market crash was due to the use of credit default swaps among the big investment banks based on leverage ratios upwards of 30:1. The reason why the big banks are scared of marking to market is that they’d all be insolvent. Hence, the need for the government to step in and deal with making the best of a bad situation.

starfleet_dude on February 18, 2009 at 1:56 PM

Back in 2000, when Hank Paulson was CEO of Goldman Sachs, he testified in front of the Security and Exchange Commission. Among other things, he lobbied the SEC to enact a “change to self-regulation” for Wall Street. He also urged them to change the “net capital rule” which governed the amount of leverage investment banks could use. The net capital rule was indeed changed in 2004, and is now blamed for the investment banks’ collapse.

Because of the change in the net capital rule, the investment houses went from 12:1 leverage to 30:1. In the case of Merrill, leverage climbed to 40:1.

What was this man doing as Secretary of Treasury? I don’t trust the government to step in and do the right thing because these government officials are all invested in protecting the existing order, regardless of the bankrupt ideology it rests upon.

flyfisher on February 18, 2009 at 2:09 PM

Bill C on February 18, 2009 at 2:06 PM

AMEN!!!

flyfisher on February 18, 2009 at 2:10 PM

Perfect?

WTF, this guy should be run out of the country. Oh, I forgot he bailed out long ago.

What ever he says, we should do the exact opposite. It can’t turn out as bad as the problems he started.

belad on February 18, 2009 at 2:16 PM

The trick is to not go from an era of easy credit to an era of deflation. The 1930s were a terrible time and no one in their right mind would suggest such suffering is necessary for economic recovery.

starfleet_dude on February 18, 2009 at 2:08 PM

What do you think we’re experiencing now? When the system is flush with debt it cannot begin again until the debt is flushed out. That flusing out is deflation. According to recent articles, 40% of the world’s wealth has vanished over the past five quarters and we’re not through tumbling. We’ve been unwilling to take the pain in the past and that is making it worse today. Greenspan kept the rates artificially low after the dot com bubble burst and promoted the real estate bubble. If we don’t take the pain now, we will just kick the can down the road, rendering it much more painful in the future.

flyfisher on February 18, 2009 at 2:17 PM

This guy has been senile for a Long time. Take him to the home now, please….

dogsoldier on February 18, 2009 at 2:18 PM

Looking at that picture of Greenspan talking about the stimulating bill reminds me of…

Five! Five Trillion! Five Trillion in Debt!!!!!!!!!!!!! and counting!

Atlanta Media Guy on February 18, 2009 at 2:30 PM

flyfisher, it’s certainly not nearly as bad as the Great Depression yet and hopefully will not turn out to be. But the Hoovernomics approach of purging the rot is what sank our economic ship after 1929 into a deflationary spiral. An economic slowdown makes it vastly more difficult to deal with debt, hence the need to jump start it via a stimulus.

starfleet_dude on February 18, 2009 at 2:32 PM

Why doesn’t that old coot just go away? He retired, but he keeps opening his mouth and delivering his two cents. He’s part of the problem to begin with, and like Dodd and Frank, want to lecture the country on how to solve it.

As far as Graham, I still can’t believe S.C. re-elected that RINO. Sooner or later, he’ll go over to the dark side and make a deal to line his own pockets or head up a committee. He makes me sick.

orlandocajun on February 18, 2009 at 2:37 PM

Five! Five Trillion! Five Trillion in Debt!!!!!!!!!!!!! and counting!

Atlanta Media Guy on February 18, 2009 at 2:30 PM

Lol…. you know, someone should make a youtube video with a bunch of clips of Obama, saying “Five! Five Trillion! Five Trillion in Debt!!!!!!!!!!!!!” to the same tune in the actual subway commercial.

BPD on February 18, 2009 at 2:46 PM

starfleet_dude on February 18, 2009 at 2:32 PM

I agree that it’s not nearly as bad on the Great Depression on the ground in the general economy…today. But in the financial sector, it’s much much worse. Our banking system is insolvent. If they fairly valued their assets our big banks would be already be shuttered. Just wait until the commercial real estate market explodes. Oh, and don’t forget the derivatives market. Some estimates say there more than $700 trilion in derivatives, of which 10% are presumed worthless.

Assuming a stimulus would even work, a premise I disagree with (the impact of debt service will only compound the problem), all it would do is preserve the existing order, an order which is simply unsustainable. If you understand the power of exponents it’s easy to understand why I say it’s unsustainable. We need a reset and fundamental changes. Anyway we cut it there will be pain.

flyfisher on February 18, 2009 at 2:47 PM

How did that pic above of Travis The Chimp get mixed up with this Greenspan thread?

JohnBissell on February 18, 2009 at 2:48 PM

As a youth, during high school in the early 1970s, I was something of an Ayn Rand acolyte. I read anything and everything written by her (fiction, nonfiction) or those associated with her (Branden, Rothbard, Greenspan, Peikoff, et.al). Greenspan became famous as a contributor to “Capitalism; The Unknown Ideal”, which was a collection of economic essays, which included his piece on “The Gold Standard”.

Some years later, after the split that occurred between many members of her inner circle, I began to read the stories written by those who described each other’s participation and contribution to the Ayn Rand phenomenon. I was surprised to discover that Rand never liked Greenspan and only deigned to include him in the book due to his friendship with Branden. Rand didn’t like Greenspan’s thinking and disagreed with him on many important issues. She later considered him a publicity-seeking hanger-on who rode her famous coattails to wealth and influence.

It was a revelation to me years afterward to acknowledge the true genius of Ayn Rand, who recognized early on the despicable character of Greenspan many years before he publicly revealed his true nature as just another statist bureaucrat.

blackelkspeaks on February 18, 2009 at 3:04 PM

WashJeff on February 18, 2009 at 1:54 PM

I have no idea but probably someone I won’t trust. As for question 2, again I have no idea.

Whomever it is, watch them very closely. The potential for fraud and cronyism is just too great.

voiceofreason on February 18, 2009 at 3:09 PM

Hoovernomics

sounds like it sucks

UNREPENTANT CONSERVATIVE CAPITOLIST on February 18, 2009 at 3:12 PM

Why should this suprize anyone this man has always been a closet Lib.Just look who is his wife is.

thmcbb on February 18, 2009 at 3:16 PM

When I look at Greenspan all I see is soylent green.

Coronagold on February 18, 2009 at 3:20 PM

I finaly figured it out. If something happens to the “O” we get Biden. If something ha[[ens to Biden we ger Pelosi.

Waht a great insurance program.

Rick007 on February 18, 2009 at 3:23 PM

Sorry for the typos a broken finger. LOL

Rick007 on February 18, 2009 at 3:23 PM

You know, I think I can fix this mess, if the nation would just, make me the King.

Speakup on February 18, 2009 at 3:40 PM

Oh, joy.

Aronne on February 18, 2009 at 4:18 PM

..so Greenspan advocates nationalizing banks (temporarily??) – He has absolutely disqualified himself as a responsible advocate of laisser-faire capitalism, not to mention its high priest.

Let’s put this Randian flunkie to bed and go with Cato’s formula:

1) Sound money, Rule of Law, Property Rights
2) Don’t make multiple mistakes
3) There is no single policy for prosperity
4) Small Gov is good for the Economy

http://www.youtube.com/watch?v=jCaUA5l_bYc&eurl=http://hotair.com/archives/2009/02/18/video-after-porkulus-now-what/&feature=player_embedded.

Quetzal on February 18, 2009 at 4:47 PM

Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.
- Karl Marx (Das Kapital, 1867)

MB4 on February 18, 2009 at 4:58 PM

Lets not forget that this whole mess started with bendover Barney Frank,Chris Dodd and Bill Clinton buying black votes with free houses on taxpayer funded unsecured loans.May they all rot in hell! Come to think of it,they can take Greenspan and that lying ass OLD lady of his with them.

nukeemnow on February 18, 2009 at 5:57 PM

“The US government may have to nationalise some banks on a temporary basis… ”

This may be a scam, people. Since when does Alan Greenspan speak in an English-spelled dialect?

Kevin M on February 18, 2009 at 6:08 PM

I remember Greenspan. My 401k not so much.

Blacksmith8 on February 18, 2009 at 7:12 PM

nationalise some banks on a temporary</em> basis

HA! Temporary my ass. Has anyone ever known anything temporary when it comes to the govt? Hell, it took 100 years to repeal the temporary tax on phones used to fund the Spanish-American war.

angryed on February 18, 2009 at 8:34 PM

It’s not nearly as bad as the Great Depression, but boy are they trying!

Merovign on February 18, 2009 at 10:05 PM

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