Pelosi: Nationalization of Banks Possible
House Speaker Nancy Pelosi (D-Calif.) says that the idea of nationalization, or perhaps partial nationalization, of America's leading banks is gaining currency among U.S. policymakers.
"Whatever you want to call it," Speaker Pelosi told ABC News, "If we are strengthening them (the banks), then the American people should get some of the upside of that strengthening. Some people call that nationalization."
Problems with Citigroup and with Bank of America may well require further infusions of federal funds into the banking system, according to news reports. Already, more than $300 billion has been given by the government to those two banks and to hundreds of others.
"I'm not talking about total ownership," said Pelosi. "Would we have ever have thought we would see the day when we'd be using that terminology? Nationalization of banks?"
President Barack Obama and his aides are not employing the same language but are apparently thinking along the same lines.
A report in The New York Times says that the administration is considering creating one, large "bad bank," which would nationalize the worst underperforming loans. This would take away the bad loans from the bank without actually nationalizing the institutions.
One of the reasons the Obama administration is moving cautiously on nationalization is that if the government owns the banks there would be political pressure to stop foreclosures of distressed loans.
But nationalization remains alluring for the Obama team as the move would halt the failure of large banks, allowing them to start raising money and begin lending money once again.
The concept of nationalization is quite foreign to Americans. Yet during the Asian financial crisis of the late 1990s the very economists who are discussing possible nationalization, among them Treasury nominee Tim Geithner and Obama adviser Lawrence Summers, told overseas governments they had to be willing to let major banks fail.
"We told the Asians that they had to be willing to let banks and companies fail," Jeffrey Garten, a professor at the Yale School of Management, and former Clinton administration official, told The New York Times.
"We warned that there was a great moral hazard if governments just bailed them out. And now, we are doing the polar opposite of our advice."
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[I can't imagine this will be an easy sell in Congress or with the general public. It's outrageous that the government would consider taking over, with tax-payer dollars, all the toxic garbage from banks to let them continue to operate. Why not extend the same nonsense logic to the general public? Too many people have lived beyond their means and can't keep up with their bills, so why not have government pay off all their credit card debt to allow them to continue spending beyond their means?]