Posted by
Always To The Right on Wednesday, February 18, 2009 4:00:52 PM
Suddenly, Lindsey Graham’s a Greenspanian,
and the wrong man moved. Alan Greenspan told Financial Times that the
US may have to nationalize banks as part of a once-per-century
necessity. It may be the only way to dispose of the toxic assets
created by, er … other government interventions in the banking industry
The US government may have to nationalise some banks on
a temporary basis to fix the financial system and restore the flow of
credit, Alan Greenspan, the former Federal Reserve chairman, has told
the Financial Times.
In an interview, Mr Greenspan, who for decades was regarded as the
high priest of laisser-faire capitalism, said nationalisation could be
the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order
to facilitate a swift and orderly restructuring,” he said. “I
understand that once in a hundred years this is what you do.”
Groovy. Suddenly, nationalization is the new Snuggie. It’s a new, hip blanket that gives the illusion of security.
Greenspan does warn that the process of nationalization matters.
Given that the world faces a huge credit crisis, the government has to
nationalize the banks in a manner that doesn’t damage “senior
creditors” of the banks. Those creditors have to have money to lend
elsewhere, and losing massive amounts of value in the banking debt they
hold will further constrict the credit markets. If the US and other
governments can draw out the toxic assets without damaging these
creditors unduly, then temporary nationalization could succeed in
salvaging the economic infrastructure.
What does that mean? The government absorbs all the losses. That means you and me.
We did something similar with the Resolution Trust Corporation to
settle the savings-and-loan collapse of the late 1980s, and managed a
soft landing for everyone, including taxpayers. However, that was on a
much smaller scale than what Greenspan proposes here, and it will take
much longer for those assets to regain value, if they do at all.
Get ready for it, though. With Greenspan on board, there aren’t many voices left to fight it.