The Obama Administration worries about the consequences of taking over the big banks, re-structuring them, and then, once they’re “cleaned up,” re-privatizing them. They’re afraid of giving Republican charges of socialism credibility, and they’re afraid of possible consequences for the International Financial system if the big banks have to go through this process. So they’ve selected the middle way of using public money to subsidize the banks and help them to create a market for what presently looks like their “toxic assets.”
However, is the middle way really the best course? Keeping the Banks in place also has its costs and these include: maintaining the present concentration in the Banking system; allowing the continued existence of excessive compensation of bank executives, this time at public expense; allowing the continued existence of bank political influence in Congress including activities by the Banks to defeat the pending EFCA legislation, so important to the American labor movement; and enduring the gross unfairness of banks on the public dole raising credit card interest rates to usurious levels to the very public that is bailing them out. This is a pretty heavy set of costs when you really think about it, and one may well be permitted to wonder whether the risks of the “socialization” alternative are greater or less?
Looking at “socialization” for a minute, guess what? Instantly: no more excessive compensation for bank executives; no more annoying and visible credit card interest rate hikes; and even the ability to stimulate the economy by lowering credit card interest rates to bring them more in line with the actual cost of borrowing money these days; no more political activity by well-funded banks contributing to conservative legislators and to campaigns against EFCA, health care reform, energy independence, education, and tax fairness. Finally, even if “socialization” shakes confidence in the International Banking System, which is at best a questionable proposition, since confidence could actually rise if the US Government takes over the Banks, then the Europeans might be far less reluctant to apply stimulus to their own economies than they are now. Not a bad result, I think, for international economic activity.
Finally, on the political front, let’s visualize the following. The Government takes over the banks. The Republicans cry socialism. The Administration says nonsense, the banks are overwhelmed by toxic assets, are not solvent, and are not contributing to recovery by lending to businesses and consumers. The taxpayers don’t owe wall street a bailout. They don’t owe bank executives huge compensation packages that in some cases are hundreds of times what a working stiff gets; and furthermore taking over the banks allows us to immediately lend money to businesses and consumers and to drop credit card interest rates to 5% annually, which is a great help to everyone who uses them and a great stimulus for the economy. In short, it’s not socialism. It’s just the practical thing to do right now to clean up the banks, get rid of the toxic assets, and then re-privatize them, so that the banks will be much smaller and much more competitive, and a real capitalist banking system can replace the dangerous “lemon socialist” one we have now. Who do you think would win that argument? And just why do we need the middle way, again?