Video and the rest of the transcript at the link-- this portion is partway through.
Nobel Prize-Winning Economist Joseph Stiglitz:
Obama Has Confused Saving the Banks with Saving the Bankers
We get reaction to President Obama’s speech from Nobel economics laureate and former World Bank chief economist, Joseph Stiglitz. Stiglitz says the Obama administration has failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery. Stiglitz also talks about why he thinks Obama’s strategy on Afghanistan is wrong and that Obama’s plan to keep a “residual force” in Iraq will be “very expensive.” On health care, Stiglitz says a single-payer system is “the only alternative.”
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AMY GOODMAN: Should the banks be nationalized?
JOSEPH STIGLITZ: Many of the banks clearly should be put into, you might say, conservatorship. Americans don’t like to use the word “nationalization.” We do it all the time. We do it every week.
AMY GOODMAN: Explain.
JOSEPH STIGLITZ: Well, if banks don’t have enough capital so that they can meet the commitments they’ve made to the depositors, at the end of every week the FDIC looks at the balance sheet, and it says, “You don’t have enough capital. You’re not allowed to continue.” And then what they do is they either find some other bank to take it over and fill in the hole, or they take it into government control—it sounds terrible, to take it into government control—and then sell it.
And that’s what other countries have done when they faced this kind of problem—the countries that have done it well. One of the important lessons is this is the kind of thing can be done well, could be done badly. And the countries that have done badly have wound up paying to restructure the bank 20, 30, 40 percent, even 50 percent of GDP. We’re on our way to that kind of debacle. But that shows you how bad things can be, how costly it can be, if you don’t do it well.
AMY GOODMAN: We’re talking to Joe Stiglitz. He won the Nobel Prize in Economics in 2001, professor at Columbia University, former chief economist at the World Bank. We’ll be back with him in a minute.
AMY GOODMAN: Joe Stiglitz, our guest, he’s the Nobel Prize-winning economist from Columbia University and co-author of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.
So, you’re saying small and big banks are being treated differently.
JOSEPH STIGLITZ: Very much so. The small banks were shut down. The big banks—Citibank, Bank of America—we’re giving huge bailouts.
Most interesting case is actually AIG, not even a bank, and we poured in $150 billion. Originally, they said they only needed $20 billion. And then, every few hours, every few days, the losses got bigger, another $60 billion. Now, that fact, the fact that we keep getting bad news and have to pour money in, should make us really worried. The question is, why did we bail out AIG? What they said is, the reason we bailed it out is if we didn’t bail it out, there would be consequences somewhere else. They didn’t tell us where.
It would make much more sense if we looked at where the consequences were and deal with the problems as they turn out. Just for instance, some of the, quote, “insurance policy derivatives” were not in the United States. The people that would have problems may be gamblers, may be other institutions abroad. Do American taxpayers want to be bailing out institutions abroad? That’s a question we ought to be debating. There may be pension funds that may be hurt. Well, some of the pension funds may be able to withstand it; other pension funds will need to have assistance. But let’s get the money going to where we think it ought to go, rather than this trickle-down approach that we’ve been using with AIG.
AMY GOODMAN: Very quickly, which countries do you think did things well, and which didn’t?
JOSEPH STIGLITZ: Well, Sweden and Norway did things very well back in the end of the ’80s, beginning of the ’90s.
The UK, I think, has been doing it much better than the United States. Its problems are bigger— we have to realize that—because its banking sector was a more important part of the economy, and one of the banks actually had liabilities greater than the GDP of the UK. So it’s going to be facing a very difficult time. But the fact of the matter is, the way Gordon Brown did it, replacing the heads of the banks—it was real sense of accountability there. Government got control and shares commensurate with the money that it was paying in—it wasn’t a giveaway—and now trying to make sure that they start lending, forward-looking. So it’s clearly—they have a much clearer concept of what is needed.
AMY GOODMAN: Why is Obama saving these bankers?
his response and the rest at
http://www.democracynow.org/2009/2/25/stieglitz