Thursday, February 26, 2009

Why Nationalizing the Banks is the Capitalist Thing To Do

I get the giggles every time I hear the term "Zombie Banks," which Krugman in particular likes to use. I've been pissed off about the bank bailout from the beginning, though I figured there wasn't much to do about it.

I've never been anything close to an economist--my studies were always more in political science and critical theory--but I've sure had a crash course since September. So now, I feel qualified to say that nationalizing the banks isn't only the best course, it's actually the proper capitalist thing to do.

Oh yes, I'll explain my thoughts here.

Krugman writes:

Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank’s bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that’s exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent...

And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”

Handing out wads of cash to Citibank (how about some student loan forgiveness?) and the rest is exactly the type of socialism of which the GOP would've liked to accuse Obama. Those campaign claims sound pretty hollow when money-for-nothing isn't being handed out to poor citizens of color but to massive corporations.

Propping up institutions like these banks isn't the socialism I'd like to see--I'd much prefer health care for all, a public school system that works, public transit that is both greener and more efficient, oh, the list can just keep going. But instead of making tone-deaf arguments that government is always the problem like, er, Governor Bobby Jindal (disparaged in better detail below), I note that the government in this case has a perfectly legitimate rationale for taking over the banks.

Steve Waldman wrote:

But if we are dumb enough to force-feed credit into the economy, let's not hide that behind a bunch of puppet banks. And let's keep it very clear that we are not confiscating private firms in order to make them tools of the state. We nationalize reluctantly, when we have had no choice but to inject public money (or guarantee assets, which amounts to the same thing) in banks that otherwise would have failed. We nationalize because, in a capitalist economy, investors get to keep the profits they endow, even when the investors happen to be taxpayers.

In other words, in a capitalist society, when you shell out money, you get something for it. You don't just give handouts.

Republican opposition to this idea gives us the perfect opportunity to call them what they really are: less free-market idealist and more classist and racist. They don't oppose government handouts; they simply oppose government handouts to the poor.