Paul Krugman: Obama's bogus objection to bank nationalization is just a diversion

[Better Believe It]

How many banks?
by Paul Krugman
March 4, 2009

One objection you keep hearing to nationalization pre-privatization as part of a bank restructuring effort is that the US financial system is just too big and complex. Here’s Obama himself, presumably repeating what his advisers told him:

"Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense."

But are we really thinking about thousands of banks? Here’s Martin Wolf, today:

"The four biggest US commercial banks – JPMorgan Chase, Citigroup, Bank of America and Wells Fargo – possess 64 per cent of the assets of US commercial banks (see chart). If creditors of these businesses cannot suffer significant losses, this is not much of a market economy."

So as far as this discussion is concerned, we’ve got, like, four banks. The “thousands of banks” line is just a diversion.

http://krugman.blogs.nytimes.com/2009/03/04/how-many-banks/

[CreekDog]

1. Obama is listening

He really does listen and this message will get through to him.

He's got a lot on his plate, but he will hear it.

We have a president who listens to many people, wants to listen to them and makes adjustments constantly.

[Better Believe It]

5. Seems like he's mainly been listening to the Wall Street clowns who caused this crisis

He needs to listen and follow the suggestions of Roubini and other economists (perhaps even a Nobel prize winner in economics!)who don't represent the banksters and other crooks on Wall Street.

[vaberella]

29. Aye?!

He's currently trying to immobolize AIG...ie breaking it down so that it's eminent failure doesn't bankrupt us any more than the economy is leading us too. It's too damn big and got that way under Clinton and Bush. He's trying to break that apart. But is ANYONE paying attention to that...I don't think so. Everything he's doing is trying to make the crash landing as smooth as possible so they could probably fix the plane and get it back to the airport. This is all he's been trying to do and yet...so many on here don't recognize it and see it as a saving of Wall Street. If he cared so much about Wall Street he wouldn't have put Citigroup and various banks through the ringer and calling them personally to get their act together.

This is not easy and I'm disgusted by so many on here simplifying it and only looking at what the MEDIA wants you to see. We have spent months upon months realizing that corporate media America HATES Obama and only wants to show what they want. They barely give him time to do anything than lambast him and those here on DU seem to be eating that shit with a golden spoon and feeding it back on DU when there are many articles and Gibbs on press conferences giving information on what they're trying to do. Plus he's open so much transparency on trying to do something for us and yet...you and others are like he cares about wall street and isn't working to try to fix things for us. That's not the case.

[Two Americas]

32. that's funny

You say "he's trying to make the crash landing as smooth as possible so they could probably fix the plane and get it back to the airport" and yet you accuse others of "simplifying it?"

Stern lectures from the various politicians are all a show for the media and mean nothing - "calling them personally to get their act together." Yet you say that it is others who are "only looking at what the MEDIA" wants us to see?




.....

[vaberella]

33. I don't see your point...

I wasn't simplifying anything...but I can understand your need for reaching. I was only speaking in regards to AIG and the subsequent downsizing of it's role in the economic sphere. This is not taking into every little aspect of the situation but just one minute area. The poster before me was generalizing everything into "listening Wallstreet and Bankers" and that is most definitely simplifying it.

As for what the Media wanting us to see...most definitely. For four days Chris Matthews has had Pat Buchanan on and just MSNBC in general has had him on saying that Obama is failing and that the economy has gone to hell and it's his fault. then you have posters like the one before me who basically stating the same non-sense. So if that's not taking in every word of the media I have no clue what is. Plus Obama did call up Citigroup...however many in the media actually said Citigroup made a statement stating they declined the plane and omitted any call from the Pres.

[Two Americas]

40. no idea

I don't have a TV. Being against whatever they say on MSM is a valuable to the right wing as agreeing with what they say is, since it is in the way the issues and the sides are defined where the damage is done.

[biopowertoday]

17. and in the meantime?? So, he listens-but does he hear?

[CreekDog]

22. he adjusts constantly on a range of issues, so yes, i argue that he does hear

does he hear and come up with new policy in 72 hours, no, probably not.

[vaberella]

30. I don't think the poster will "hear" you...most want quick answers

and are reactionists. I've been noticing this on this board as a regular occurrence.

[Two Americas]

41. not logical

Since you have made a generalized comment about the "reactionists" whom you see as "a regular occurrence" I will comment on the sycophants here.

We hear a variety of reasons offered up for why we should not be critical of a politician. He knows more than we do, he is smarter, we are being impatient, he is listening, if we just wait he will do everything we want him to do without us saying anything.

It is not logical to say that people should not comment, because Obama is listening. What would he listen to if we all refrained from commenting?

Also, of course people call for politicians to do things that they have not yet done. What else? That doesn't mean that people should be quiet because he is getting to the things they are talking about, nor is it justified to portray any and all critics as impatient and therefore unreasonable.

Of course we are asking for things that Obama has yet to do, and of course we are "impatient," and of course Obama may eventually do the things people are calling for him to do? So what? How could it be otherwise? No one could ever make any critical remarks about any politician if we all followed the rules you are implying here.

Politicians do things because people demand them. That is how a representative democracy works. Several times here when Obama did things that people had been calling for, those who were arguing against those things before suddenly claim a victory and say "see! You criticism was all wrong, and you are proceed wrong, because he did what you were asking for!" That is bizarrely illogical. The critics were proved right, not wrong, when a politician does what they were demanding, and that validates the critics and tells us we need more, not less, critical dissent.

I love this - "he is listening so would you please shut up?" lol "he is going to do what you want him to do, so stop telling him what you want him to do!" and "wait until he does it before you talk about it" and "you can't talk about it because these things take time, and if you demean something that means you aren't giving him time."

I think I will keep on reactionisting. Just because I am so impatient and I want quick answers. lol

[glowing]

38. Seeing that the polls are 52% favorable and the stocks are trading for

dollars, I think we will nationalize.. How hard would it be for a foreign country to come in and buy up that stock and then own the 64% of the capital of America? Or would they lose their shirts in taking over the banks too? Not sure how this all factors in.. I'm not close to an economist, but I would think these banks are in jeapordy of a take over.

[earcandle]

43. I just heard Krugman say they will be pre-privatized, once cleaned up and healthy again.

[Better Believe It]

2. Thomas Hoenig, President of Kansas City Fed Calls for Nationalization

March 6, 2009, 6:25 pm
What’s the matter with Kansas?
by Paul Krugman

Thomas Hoenig, president of the Kansas City Fed, is sounding a lot like, well, me*:

"We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. … We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed the basic shortcomings and, in some cases, the insolvent position of these institutions.

We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis."

* And Simon Johnson, Nouriel Roubini, and many others.

http://krugman.blogs.nytimes.com/

[Telly Savalas]

23. Hoenig lays out the argument pretty convincingly

I haven't read the full Omaha speech yet, but the blurbs at Calculated Risk are pretty persuasive.

I yet to see a good argument demonstrating that what Geithner is doing is preferable to the short-term nationalization as outlined by Hoenig/Krugman/Roubini.

[Rosa Luxemburg]

3. using the word nationalization is tooo scary for some. Another term - Cooperative Banks'

for the people by the people

[Better Believe It]

6. The name doesn't matter. JUST DO IT!

[rollingrock]

4. That's like saying

the US has thousands of major media outlets because each local station uses a different call letter.

Christ, Obama can't be that dumb.

[avaistheone1]

7. Some times I think he hopes we are that dumb.

Another example is when Obama talks about clean coal. I guess he is gambling that people are too stupid or lazy to read about clean coal as well.

[Cha]

10. Bullshit.

[avaistheone1]

12. Then maybe you can educate us on all how great clean coal is for us.

[rollingrock]

20. No doubt

I can't imagine how anyone could be dumb for fall that clean coal nonsense.

Jeez, his handlers must think people are truly stupid.

[cliffordu]

27. Read Obama's fucking quote. The whole thing....

Then make a little report for the class.

[vaberella]

31. He's not dumb on clean coal. If you're interested in what I mean I'll explain.

I brought this to my teachers attention and he explained what Obama's doing. If you're wondering he mainly works with state government officials and is an environmentalist.

[earcandle]

44. i like to noodlebrain people that stupid, especially at parties.

[Cha]

9. Fuck all smarter

than you are.

[avaistheone1]

13. huh?

[Jim Sagle]

24. Take yer cheerleading ass back to dkos.

We're Democrats, not Obamacrats.

[Median Democrat]

8. Logistics - Think The Problem is Directly Related To Staffing Shortage In Treasury

Obama's mistake is the delays in appointing people to the Treasury. Geithner has no Deputies. Even Volkner is now complaining about this.

[backscatter712]

21. Yep. Geithner doesn't have his shit together.

And the delays and fuckups coming from Treasury are getting damned annoying!

[northernlights]

34. maybe they're having a hard time finding anyone

without tax and/or other serious corruption problems? :shrug:

Wouldn't surprise me in the least to find that everybody with the "experience" to run treasury is just a tax cheat and lying scummy thief that's been stealing for years on an incredibly grand scale...

[earcandle]

45. LOLOLOLOL!

[ProSense]

11. Well, the comparison was between all the nation's banks. Krugman

recognizes that nationalizing the banks will be controversial. He knows that the troubled banks will be under some sort of federal control. So, as far as this piece is concerned, Krugman is just making his case for why four banks should be nationalized.

[Better Believe It]

14. And those four banks are insolvent!

So nationalize them, or use some other term if you like, but do it or face the consequences.

Even nationalizing them is not guaranteed to stop the financial crisis, but it's the only reasonable option that makes sense.

[ProSense]

15. What about the other 36% of assets?

How many troubled banks are in that group?

What's the solution for them?

[elleng]

42. Compare with this from Blinder:

http://www.nytimes.com/2009/03/08/business/08view.html?th&emc=th

[earcandle]

46. Means that both stockholders and management goes.

But I hope they keep the employees, or hire people like me to
train. 
We independents are valuable because we are used to providing
a service.
We are hard workers and proud of it. Use entrepreneurs to
start up your national banks!
I would be proud to train, be trained, audit, analyze,
reconcile, report, present... investigate. Yum. 

[Metta]

16. O's getting bad advice from Wall St. hawks like Summers and Geithner.

And Bernake who should be in jail.

[Median Democrat]

18. Then Why Isn't Obama Ruling This Option Out If Its Off The Table?

I think it is notable that the option is not being taken off the table AND folks from both parties have begun to discuss the idea. I really think the issue is logistics. Obama has only been President for less than 60 days AND Geithner has no deputies AND the FDIC is short handed, AND has been hiring like mad.

FINALLY, if you were leaning towards nationalization, BUT you did not have everything in place to do so, would you announce this as your intention before the fact? NO! Why not? Because once you acknowledge that you will nationalize, then bank shares fall to zero, and depositors begin to withdraw their money.

[PBS Poll-435]

19. The "assets" chart is wrong.

Way wrong.

[RoyGBiv]

25. Krugman is an economist ...

He happens to be a very good one.

And, he is approaching this as an economist would, which is necessary.

Obama is a politician, also a very good one, and he's approaching this as a politician would.

I think sometimes Krugman forgets that, or at least his writing appears as though he forgets that.

What's more important for the context of those of us discussing it and damning one or the other for their approach is that *we* forget the two perspectives.

My personal view is that Krugman is precisely correct at suggesting what is needed and at criticizing the view of "thousands" of banks being an objection. However, Obama is also correct in his use of strategy. As with most things, Obama comes at these tricky situations from a back door. He's not going to sell nationalization straight up, and it will not fly at all until people are essentially begging for it.

And that's starting to happen.

I think we, as observers and critics of all things political, should adopt a wait and see approach, continue to voice our opinion based on the best evidence and knowledge we can gather, and continue the process of moving the masses toward demanding the right thing be done. This is how politics works when it is working, and it seems to be working rather well so far in the current administration.

Edit: spelling

[MarjorieG]

26. And Kerry says cooperative partnership, I think. We still don't know the health of these banks.

A necessary first step. Krugman is always flying off on some bold tangent we're supposed to follow, immediately because he says so.

Geithner needs to be bolder, but I'm not sure we know the correct path that will affect globally.

[RoyGBiv]

28. Yes, he is ...

I have a lot of respect for him, but he is an example of your standard theorist who is not in fact working at the nuts and bolts of doing things. Theories are great and much needed, but the practical application of a theory is often much more difficult.

As for knowing the correct path, I don't think we can know. I like the way Brad DeLong put it on his blog a week or so ago when addressing some criticism from a right-wing editorialist. Economics is distilled history. It's not a hard science where you can put variables into models with results predictable down to the millionth decimal point. Economic theories are good if they're correct within a few percentage points. What good economists do is take stock of the history and patterns we know and attempt to predict based on the best available models that can be put together. The Obama team is by and large doing that, albeit with a bit too much caution/conservatism.

We need to try things, which is what we're doing, although, as you say, Geithner does need to put more vigor into these measures.

All that said, I don't want Krugman to shut up. To borrow from Talking Points Memo shortly after the election, the job now of those who worked to get Obama elected is to continue to agitate for those things we seek to be implemented, changed, etc. It's not enough just to let Obama work. We have to help him work by continuing to suggest directions to take, and I think Krugman and many others are doing that and that this is precisely what Obama wants, i.e. an administration that draws on a wide array of expertise and doesn't simply make unilateral decisions in a dark room somewhere.

[Teaser]

35. It's a diversion from the fact that they *are* nationalizing the banks

a fact that no one seems to notice. They've been doing it piecemeal, but they are doing it.

[polichick]

36. Actually, they keep throwing money at the same crooked bankers...

Nationalizing would get rid of the board of directors and the top brass ~ until we do that, nothing will change.

[EmilyAnne]

37. Then please submit a very detailed plan of action to our president, Mr. Krugman.

[Better Believe It]

39. Obama and his economic team are unable to do that?

Well, perhaps President Obama should appoint a new economic team headed by Nouriel Roubini and Krugman that is capable of drawing up a bold plan of action to kick start the economy and stop a financial collapse.

It seems obvious that the Wall Street representatives heading Obama's economic team are incompetent and incapable of developing a detailed plan of action that gets the job done.

How in the world do people expect the Wall Street banking "specialists" who were responsible for financial deregulation and this crisis to end the crisis?