One of the things I find truly remarkable is the degree to which Americans (or at least commentary in pretty much all American media) have bought into certain ideological constructs as if they were gospel truth.
Now in fact, most of us operate from ideologies of various sorts. For instance, reasonable people can differ on the tradeoff between individual liberty versus greater social good, on efficiency versus fairness. But casting them as some sort of objective truth dulls thinking and impedes coming up with solutions.
It is also important to recognize how far the country has moved to the right in the last generation plus (when I was a kid, I considered myself to be pretty indifferent to politics, and middle of the road on most issues save civil liberties, where I was left leaning. My views have not changed, but the rest of the country has). Joe Klein (via Brad DeLong) is more pointed:
We are at the end of a 30-year period of radical conservatism, a period so right-wing that many of those now considered “liberals”–like, say, Barack Obama–would be seen as moderate pantywaists in the great sweep of modern political history. The past 30 years have… [seen] such a profound destruction of the basic functions of government that a major rectification is called for now–in rebalancing the system of taxation toward progressivity, in rebuilding the infrastructure of the country, not just physically, but also socially and intellectually.
Again, reasonable people can differ on how much of a reversal is needed, but the sorry record of the Bush push even further right (and his big business corpocracy is a form of conservatism, even if it betrayed small government Republicans) means a retreat is in the cards.
Back to the beat of this blog. One of the canards that has become instilled over the last 20 plus years is “government is every and always awful, the private sector is every and always better.” There are some compelling illustrations of the former (the postal service versus Federal Express. But gee, we made the Post Office private, sort of, to fix that problem. As far as I can tell, it hasn’t made things better). There are also examples of competence, indeed high skill levels, in government. Would you want air traffic control in the hands of the private sector? I’m belatedly reading Nassim Nicolas Taleb’s The Black Swan, and he goes to great lengths to describe how defense analysts have a far greater appreciation of risk and the “unknown unknowns” that can create true disasters, than their vastly better paid counterparts in finance.
Recall that the “if you are in government, you must be no good” myth is based on the idea that government pay scales are no good, and everyone in America is motivated solely by money. The latter is clearly not true, and the inefficiency of the education and labor markets in the US mean that plenty of good people (in terms of native intelligence, work habits, and personality) may nevertheless not wind up on the social/educational tracks that could land them in big ticket jobs (of course, now that the economy is tanking, those less lucrative but more stable government tracks don’t look as shabby as they once did). I have run into way way too many people who had every bit as much to offer as the Ivy League types but for reasons of family background (where they went to high school, most often, since you need to go to a strong secondary school to have a shot at a top drawer private college) were unlikely to be accepted. And I have met plenty of people who went to fancy schools who are idiots.
In addition, I have had the pleasure of dealing with the occasional well run government department. New York City has a great housing office (phones answered quickly, information detailed, with reference to the statues and procedures, courteous manner) as well as the New York State Insurance Department (prompt action on correspondence, even agents making multiple calls to find answers and getting back to me in less than 24 hours. I seldom get that in the private sector). Admittedly, this is anecdotal, but the prejudice of the reverse sort is not based on much more. And that’s before we get into the considerable graft and waste involved in outsourcing.
This long-winded preamble relates to the matter at hand, namely, the bizarre reluctance to have the government exercise more authority over banks it effectively owns. The Fed and Treasury seem a bit schizophrenic: they really do not want to take on this mission, yet are coming to recognize, with so much at stake, they can’t leave the banks on auto pilot. But the ambivalence shows, and may be exacerbated by the mantra in the media, “We don’t want the government running the banks.” Given how badly the banksters have done, second best choices may not be so bad right now.
The Financial Times has two comments today, one by John Kay, the other by Martin Wolf, and both dispatch this topic well. First from Kay:
Governments have attempted to impose the first element of nationalisation (ownership) without the second (ultimate control and accountability). But such a separation is neither desirable nor workable for long. The wrangling over Sir Fred Goodwin’s RBS pension is an immediate, if trivial, illustration of problems that arise when the government, in effect, owns an institution but maintains ambiguity about authority. So is the far more substantive issue of who implements lending obligations of publicly supported banks.
Vikram Pandit, Citigroup’s chief executive, poses the issue in stark terms. When the US government announced further support last week, he was reported as telling analysts: “We completely remain in day-to-day charge of the company. We are going to run Citi for shareholders.” But if I were a US taxpayer, I would ask why I had provided $45bn (€36bn, £32bn) to a business that was going to be run for shareholders, especially when the current value of outside equity is barely 10 per cent of my own contribution. I can think of no good answer. The US government has not given Citigroup $45bn because it thinks such support is a good financial investment. Most experience shows the situation of struggling banks gets worse much more often than it improves. The US government has given Citigroup $45bn because it fears, rightly, that its collapse would have devastating consequences for the US financial system.
The first objective of Citigroup’s management should be to put the bank in a state in which it can operate without government support. The second should be to ensure that the organisation is structured in a way that can never again jeopardise the stability of the world economy. The interests of shareholders must be entirely secondary.
So when Mr Pandit says that the government’s injection of capital will not change strategy, operations or governance, I would e-mail my congressman to ask why on earth not, and tell that congressman what changes I did expect. The company should divest or close activities not related to its essential public function. If Citigroup wants to continue to engage in proprietary trading, it should raise capital for the purpose from private sources.
No one wants bank managers to be replaced by civil servants. But there are a lot of perfectly competent bank managers out there, even if there are a lot of incompetent bank executives.
And from Wolf:
Much of the debate [over nationalization] is semantic. But underneath it are at least two big issues. Who bears losses? How does one best restructure banks?…
Yet the overwhelming bulk of banking assets are financed through borrowing, not equity. Thus the decision to keep creditors whole has huge implications. If we accept Mr Bernanke’s definition of “nationalisation” as a decision to “wipe out private shareholders”, we can call this activity “socialisation”.
What are its pros and cons?
The biggest cons are two. First, loss-socialisation lowers the funding costs of mega-banks, thereby selectively subsidising their balance sheets. This, in turn, exacerbates the “too big to fail” problem. Second, it leaves shareholders with an option on the upside and, at current market values, next to no risk on the downside. That will motivate “going for broke”. So loss-socialisation increases the need to control management. 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….
In those circumstances, the idea of “nationalisation” should be seen as a synonym for “restructuring”. Few believe banks would be best managed by the government indefinitely (though recent performance gives some pause). The advantage of nationalisation, then, is that it would allow restructuring of assets and liabilities into “good” and “bad” banks. The big disadvantages are inherent in organising the takeover and then the restructuring of such complex institutions.
If it is impossible to impose losses on creditors, the state could well own huge banks for a long time before it is able to return them to the market. The largest bank restructuring undertaken by the US, before last year, was that of Continental Illinois, seized in 1984. It was then the seventh largest bank and yet it took a decade. How long might the restructuring and sale of Citigroup take, with its huge global entanglements? What damage to its franchise and operations might be done in the process?
We are painfully learning that the world’s mega-banks are too complex to manage, too big to fail and too hard to restructure. Nobody would wish to start from here. But, as worries in the stock market show, banks must be fixed, in an orderly and systematic way. The stress tests should be tougher than now planned. Recapitalisation must then occur. Call it a banana if you want. But bank restructuring itself must begin.
Both pieces are worth reading in their entirety.
The only leash and collar I want to see is the RICO collar and shackling of the commercial bankers, Wall Street investment bankers, and Countrywide bankers and other mortgage “bankers” who committed the greatest financial crimes in U.S. history. The RICO collar and prosecution also should include Hank Paulson Treasury Secretary, Ben Bernanke Federal Reserve, Geithner NY Federal Reserve, and SEC chairman Cox as co-conspirators aiding and abetting the banking criminal enterprise.
And the problem is? Are not banks taking the governments coin doing as they are told ? Pay caps, loan mods , get rid of the private jets, no meetings in Las Vegas etc. I suspect Congress is only warming up in their demands on the banks they now effectively own.
As to the rightward drift in America I would only ask where is today’s Howard Hughes? When he appeared before Congress in the late 1940’s it was not the trained seal act our modern corporate titans put on. No sirree! When Senator Brewster demanded to know whether Mr. Hughes
was going to comply with his demands Hughes responded, “No sir, I don’t think I will”!
If there is a group that feels itself more omnipotent, more entitled than corporate chieftains it would have to be the US Congress. Putting this nation’s banks into the hands of the Chris Dodd’s and Barney Franks of that body would be disasterous. Better to let them fail.
“The biggest cons are two. First, loss-socialisation lowers the funding costs of mega-banks, thereby selectively subsidising their balance sheets. This, in turn, exacerbates the “too big to fail” problem. Second, it leaves shareholders with an option on the upside and, at current market values, next to no risk on the downside”
You can say private gains, socialized losses a thousand ways. We lost money (I am near retirement, and I am none too happy about it, but I am an investor through my 401k, and I bear some responsibility) but after flushing 1,000$ down a toliet, the solution is not more money down the toliet. We have got to let the venal, and stupid comapanies fail – its a profit and LOSS system.
In a moment of candor, Ben Bernanke told Congress yesterday that current law is insufficient to allow Treasury and the Fed to restructure the banking and insurance industries. Congress would have to act to allow banking and insurance restructuring.
I am not sure what he meant, but assume he meant the right to extinguish CDS, MBS, and other contracts that the banks manufactured in unsupervised, unregulated otc markets.
“It is also important to recognize how far the country has moved to the right in the last generation plus (when I was a kid, I considered myself to be pretty indifferent to politics, and middle of the road on most issues save civil liberties, where I was left leaning. My views have not changed, but the rest of the country has). Joe Klein (via Brad DeLong) is more pointed:
We are at the end of a 30-year period of radical conservatism, a period so right-wing that many of those now considered “liberals”–like, say, Barack Obama–would be seen as moderate pantywaists in the great sweep of modern political history. The past 30 years have… [seen] such a profound destruction of the basic functions of government that a major rectification is called for now–in rebalancing the system of taxation toward progressivity, in rebuilding the infrastructure of the country, not just physically, but also socially and intellectually.”
LOL……you have to be kidding. And then there’s this gem:
“One of the canards that has become instilled over the last 20 plus years is “government is every and always awful, the private sector is every and always better.” There are some compelling illustrations of the former (the postal service versus Federal Express. But gee, we made the Post Office private, sort of, to fix that problem. As far as I can tell, it hasn’t made things better).
Just keep lining up the strawmen. But now worries. You will have your central planning in the economy. When we get to plan Z we will review the failures of the previous 25.
Ah, Ms. Smith, good to hear you lay out the long drift rightward in this nation. But look at invective you draw just by doing so. I wonder if it is possible to salvage something from this wreckage. If Obama fails — and clearly, he could — we will see the return of the right and the demise of our grand experiment in representative democracy.
Keep up your good work. My respect for you continues to grow.
“As to the rightward drift in America I would only ask where is today’s Howard Hughes? When he appeared before Congress in the late 1940’s it was not the trained seal act our modern corporate titans put on. No sirree! When Senator Brewster demanded to know whether Mr. Hughes
was going to comply with his demands Hughes responded, “No sir, I don’t think I will”!”
Finance CEO and officers were making money off political favors, through access to Fed guarantees, lending, etc. None of them compare to Hughes because none are highly profitable without the government assistance.
In comparison, look at Microsoft. When the government did its antitrust prosecution, MSFT fought them tooth and nail. Real businesses generating real value without government assistance can fight the government. And do.
A linguistic massif has risen up under the tectonic twin-pressures of marketing and advertising that has change America, forever, into Thinktankistan.
Education leads with the shining light of an expanding awareness. The think-tank, marketing model “educates us,” and then recoils with a hiss, to then hide in the shadows until “further instruction” becomes possible, that is, when we are again, brutishly unaware.
When we all begin to question the truism that we repeat over and over, again, each of us can find think-tank spawn within our own minds, that was put there at the cost of tens of billions of dollars.
The incessant, think-tank ejecta, to me, is a rain of sulfur…a cloud of asbestos, that I am loathe to endure.
Thanks for exposing it.
Completely agree with the notion of keeping the banks now owned by the government on a shorter leash….
But your preamable is a mess.
Please tell the Joe Klein’s of the world discussing such abstract notions of “functions of government” is meaningless without acknowledging that our government functions on the basis of Federalism.
I realize that addressing an issue of “State’s Rights” can be rather boring…but you cannot have a meaningful discussion about the role of government without recognizing this pesky element of our democracy.
And here’s the problem many have with a large central government in our system of governing:
A large central government, operating in the confines of a federalist system with a Constitutional deference to State Governments is a BAD combination?
It’s a bad combination because it inevitably leads to the Tragedy of the Commons that is the source of so much of our rot.
Case in point: If Harry Reid wants a high speed rail from LA to Las Vegas, then Nevada and California should work it out amongst themselves. This is NOT a central government issue…and there is no place for such an earmark in central governmental stimulus bill.
And yes, you can easily replace Harry Reid with a Republican Senator, guilty of the same bullshit if it suits you…
“Representation” in our government now means how well our particular representative can go to the central government and take from many to benefit a few.
And that’s where you’re missing the point….
If you want a big central government, OK, fine. But, first, change the Constitution, abolish (or drmatically reduce) the notion of state’s rights and get on with it.
It’s no coincidence that people who favor a large central government are too often afflicted with Euro Envy. This point of “The United States” and Federalism eludes them.
All discussions of Big government or small are a muddled mess without reconciling this issue.
If you want a large central government, then you have to plead for a smaller state government. Conversely, if you want a small central government, you have to plead for a larger role of state governments.
But just stating–Big Government is good—or bad— is meaningless and quite irrational. Additionally, this type of “analysis” leads to the worst of all worlds–what we have now:
An ineffectual large central government presiding over a group of ineffectual large state governments in this Tragedy of the Commons.
There is no question that the article accurately states the reality: The banks are already nationalized, and as the new owners, the government has decided to leave the old owners running the show, with no penalties, either personally or professionally for ‘threatening to destroy the american economy’.
It is however an article of faith to believe that we nationalized the banks ‘in order to save the economy’. Certainly that was the claim made in public, but the public claims of our leaders are routinely found to be false when subjected to fact checking. The problem with believing that the banks were nationalized in order to save the economy is that, as pointed out in the post, leaving the present management in charge, and rigging the benefits and losses to increase risking taking doesn’t save the economy, and that is exactly what we have done.
If you assume that, absent obvious error, the results of peoples actions indicate their actual goals — it’s what they do not what they say — then the reason we nationalized the banks, and other PE firms, was to insure that those individuals and corporations continued to profit despite their catastrophic, selfish, greedy behavior. Since we have had multiple opportunities to implement a ‘bailout’ that might have some other outcome, including having a new administration have a go at it, we can safely assume that the actual outcomes reflect the actual goals.
Why the public is willing to believe that ‘our leaders are miracle workers of competence, insight and skill, and deserved to be rewarded for their efforts’, on the one hand and that the outcomes of their efforts do not in fact reflect their goals, on the other, is a testament to the power of idolizing hero worship psychology, but not a particularly great basis for thinking about public policy.
It is indeed the case that the media, and perception manipulation efforts of our owners, to create a belief system of right wing ‘free marketism’ has indeed prospered beyond anything imaginable 30 years ago. (well except not quite, unfortunately this to was anticipated 50 years ago, just go read Heinlein), to the point where in public debate ‘free marketers’, and rightwing policies generally are somehow rarely even implicated in the economic collapse, much less actually blamed. So that we have people prancing around proffering ‘free markets’ as a solution to the problem that ‘free markets’ created, even as the real powers behind the free markets movement, show their real cards and use public funds to rescue them from the disaster of their own creation.
“The first objective of Citigroup’s management should be to put the bank in a state in which it can operate without government support. The second should be to ensure that the organisation is structured in a way that can never again jeopardise the stability of the world economy. The interests of shareholders must be entirely secondary”
It’s impossible to know, given the opacity of C’s on-and-off balance sheet obligations, but this may well be impossible. Turning C towards more traditional, low-risk, low-margin banking practices might not allow them to earn their way out of losses on the books. It’s possible that even if they were able to do so through below-market taxpayer funding, it would be at the expense of the other big 4 (or healthier regionals), pushing them further towards crisis. There simply might not be enough of this business to go around to cover all existing exposures.
The best “government infrastructure” project I can think of is to finance vehicles to break these behemoths up (Fannie and Freddie, too) so they no longer threaten the global economy.
I do not believe I have seen anyone make what appears to me to be the most obvious point in all this:
How can the private sector be better than the government at absolutely everything related to banking, yet the private sector is supposedly unable to put an accurate value on the CDO’s, CDS’s and other fraudulent securities held by the big financial players?
I think Geithner and company have it almost exactly backwards: the private sector has correctly concluded that the “assets” held by these companies have zero or negative value. Under these circumstances, government management of the bankrupt entities is likely to be better than the leadership of the private sector rats whose primary concern is to find a way off the sinking ship.
As far as I’m concerned, the only debate worth having is over what kind of government management is best – management by a bankruptcy judge overseeing a debtor in possession, management by regulators and/or receivers, etc.
One of the canards that has become instilled over the last 20 plus years is “government is every and always awful, the private sector is every and always better.”
So what? It’s only a canard. In actuality over the past 20 years we’ve have ever increasing government and an ever-shrinking private sector.
Nothing like ignoring facts in order to pump your ideology.
A very accurate description of the Right’s conflation of political opinion and scientific fact in the past 30 years. Intellectually, this resembles the state of affairs in the Soviet Union. As an empirical matter the supposed ‘formula’ for prosperity the Right peddles most closely resembles what happens in…PAKISTAN! Yes, a minimal state (except for a greatly bloated military), few people paying taxes, endless favors to landed interests to promote ‘growth’, and the use of religious zealotry to deflect attention.
The really scary thing is that even commenters on this blog still think these ideas are obviously correct. They deride criticism of that ‘ideal’, claiming critics are using “straw men”. Sad.
Tribal politics rather then vision and a clear agenda for the Democrats drive the current debate. The Democrats own the Congress and White House. Filibuster rules can be changed by majority vote so no need to bend to Republican wishes on any item.
The reality is that the Democrats themselves are deeply divided on most if not all issues and the White House reflecting more of a corporate instinct rather then true reform such as FDR when he took control find themselves looking for consensus within their own political mob.
The problem is not Republicans but Democrats and the lack of a vision to pass meaningful legislation to change the countries course.
Isn’t it obvious that Pandit is either deluded or lying when he says the company will be run for the shareholders, without interference? Ken Lewis wanted to back out of the MER deal and regulators said he could not. FNM and FRE are nothing but government agencies at this point – with still no explanation as to how their BOD’s were “persuaded” to hand over 80% ownership. Paulson forced banks that didn’t want capital to take it. He forced NCC to sell itself.
The idea that regulators and politicians are somehow lacking in power over the companies in which they’ve placed capital is just plain silly. Perhaps they are not exercising their authority to your liking, but it’s not for lack of power.
Distinguish between ownership and control. The government can have either one without the other.
“How can the private sector be better than the government at absolutely everything related to banking, yet the private sector is supposedly unable to put an accurate value on the CDO’s, CDS’s and other fraudulent securities held by the big financial players?”
And you think the government can?
The private sector is not unable to put a value on these instruments. There is disagreement over what the value is, just as there is disagreement over the value of any given stock. It so happens that at the moment no trading is taking place in the instruments you are talking about, so there is no observable market price. That does not imply that no one can value them. Quite the contrary – many people have placed a value of zero or near zero on them, and many other people disagree with that.
You think Barney Frank ought to sort that out? Good luck.
The level of ignorance in the thread above is striking. I suggest looking up the definition of fascism. That’s the direction this country has gone in, and it is most decidedly right wing.
Big government is not the sole province of the left.
I don’t really get this whole rightward drift thing…the country is much more open and liberal than it was 20 years but that’s another subject.
One question i’ve been thinking about is that these stress tests that the government is going to be applying will be essentially mark-to-model as it’s impossible to know what market prices will be a year from now.
Also, any sort of nationalization seems like the nuclear option to me. Why not wait a few months to see if the banks net interest margins are enough to self-heal, to see whether the bad bank proposal works etc?
anon…spoke…as from Noam Chomsky, himself.
At the very least, Citibank needs to be ordered to drop their lawsuit against Wells Fargo concerning the Wachovia takeover. I see no reason why my tax dollars should finance Cit’s pique.
FORTUNE, March 4, 2009 — To read the new 10K annual-report filings that Citigroup and Wells Fargo each submitted last Friday to the Securities and Exchange Commission is to recall — with horror — four days last fall when Citi was slated to take over the fourth largest banking company in the U.S., Wachovia. Then Wells pole-vaulted into the picture and suddenly, as October dawned, it was the West Coast bank, not the East Coast bank, that was to acquire this venerable, though reeling, Southern establishment.
Citi sued after that, claiming it had been robbed and trying to stop the deal. The lawsuit, which seeks $80 billion in damages from Wells, still exists. But after weeks of litigation, Citi settled back to just asking for money and stopped trying to prevent Wells’ acquisition of Wachovia, which proceeded to take place on the last day of 2008.
As a taxpayer, you have to say, “Whew!” Wells at least turned a $2.7 billion profit in 2008 and just might be able to cope with Wachovia’s mortgage-laden problems. Citi, meanwhile, reported an $18.7 billion loss and says in its filing to the SEC — repeatedly — that its future is greatly clouded. That proposed combination of Citi and Wachovia looks like it would have been a disaster beyond all reckoning.
Huge government subsidies are going to destructive, insolvent financial companies, at the same time no new regulatory or accounting rules have been instituted. More CDS gambling on the taxpayers dime with the hope that everything will turn out alright and the previous unsupportable/unsustainable CDO/CLO securitized financial system can be resuscitated is pure insanity, or as Blanche DuBois would say, “I rely on the kindness of strangers.” Paulson/Bernanke/Geithner/Summers have only one objective, i.e., to save the bankers. President Obama, you and I are being played.
But, you forgot the health care portion of Obama’s speech. Without change to the health care system, well,..even the think-tanks agree, all hope is lost:
or, click “brushes9” for the link.
Market reform and health care are linked..in reform, or in a death spirial.
Typically for a blog comment, this is rather glib but this how is this not, in some sense, taxation without representation?
I believe that there is some history in this country of violent revolution over just this issue.
The time constraints are very real, in that these Zombie banks are sucking up capital that could otherwise be employed AND the very presence of these Zombie Banks freezes capital markets … Then there is the problem of banks making wild bets to try to get back losses creating further moral hazard and possibly more huge losses.
The simplest, easiest, timeliest way forward is to place all the assets and liabilities into a holding company at book value for disposition while the government takes over the operations.
Bondholders, preferred and stockholders are paid out of the proceeds of this asset disposal based on seniority of debt. In this way the government does not have to deal with these toxic assets. It would be the owners that would seek price in the open market on these assets.
The operations go forward, the toxic assets are disposed of as the owners see fit.
The difference between your “simple way forward,” and what we have right now is a good measurement of the girth of our corruption, or better, it reflects the coefficient of friction of the gavity-of-our-matter that is, now, holding us back.
It is, to coin a metaphor, “metal” to lay claim to our past victories, when the opportunity arises.
Before Carter, the Navy ruled foreign policy for the right-wing.
Have we shifted to the right in the last 20 year? Well,..no, because 30 years ago we used to just pull up along side, 10 miles out and just launch volkswagens at our weak, liberal opponents.
The right is not strong within Thinktankistan but, perhaps, inside its final perimeter.
It seemed to me that Yves was pointing more to change in quality than size. Sure the two are related but not necessarily as has been portrayed by ‘conservative’ ideology. More than federal structure or political labels, it gets down to who/what dominates, and uses, that structure…which then gets into the area of money, power and class, which has definitely changed over the last thirty or so years.
I’m so glad to hear that Yves Smith feels as I do that we are walking museums of the moderate liberal attitudes of thirty (in my case) years ago. My son thinks I’m practically a Bolshevik.
Anonymous’ comment that big Govt. can also be Fascist is right, but I think it’s necessary for the hesitant to remember that in the US there are still elections and it is still possible to campaign without massive street violence actively abetted by police and the courts. If I were American I would still support a relatively moderate “big Govt.” until the point is reached where democratic processes and the courts no longer function – as became the case towards the end of Weimar. At that point, emigrate.
Sarkozy has many flaws but one of his qualities is that his core ideology is to be in favour of whatever works best. 100% pragmatic (and opportunistic). He also has the intelligence to often avoid making the wrong macro assessments.
There is not time for academic finesse here. Lets just get it done with.
Now that the government is the largest shareholder of the big banks, and is likely to become a much larger holder, doesn’t it become harder to say that benefiting shareholders isn’t the right priority?
Is there any sign that post-crash, the loss-socialized banks have increased their appetite for risk, i.e., that moral hazard has shown up? Isn’t the opposite the case, that the banks are unwilling to take on any risk, in part because they fear their new masters?
“One of the canards that has become instilled over the last 20 plus years is “government is every and always awful, the private sector is every and always better.” There are some compelling illustrations of the former (the postal service versus Federal Express. But gee, we made the Post Office private, sort of, to fix that problem. As far as I can tell, it hasn’t made things better). There are also examples of competence, indeed high skill levels, in government. Would you want air traffic control in the hands of the private sector?”
I’m not sure what part of the US Post Office you think is private. It is wholly owned by the US government and controlled by Presidential appointees and the Postmaster General. This shouldn’t be the model we use for banks.
The ATC system is also an interesting choice. There is no reason it couldn’t be run by private entities under a regulatory scheme similar to the 911 system and there are FAA contract towers in the US.
I think the reason the government is reluctant to ‘run banks’ is simple. They don’t know how yet. I’m sure they would give it a go if they had any clue where to even begin.
Of course this is an obvious straw man anyway. I’m not aware of any serious person making the argument in ‘every and always awful’ terms. It isn’t even close to becoming a canard that has become instilled.