Geithner Appeals To Ideology To Resist Nationalization

by: Daniel De Groot

Thu Jan 29, 2009 at 21:15



Earlier today, Chris appealed to the Obama Administration not to create a "bad bank" and buy the financial industry's cursed child of market alchemy, the Shitpile.

I want to draw more attention to Geithner's justification for not simply nationalizing the insolvent banks and liquidating shareholder equity as quoted in the NY Times:


He discouraged speculation that the plan would include the nationalization of some banks.

"We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system," he said.

This is a flat out ideological statement.  One might even call Treasury Secretary Geithner an ideologue for this stance.
Daniel De Groot :: Geithner Appeals To Ideology To Resist Nationalization
Bloomberg puts it so:


Geithner, who was sworn in Jan. 26, said today his department is considering a "range of options" for its financial-rescue plan, with the goal of preserving the private banking system.

Geithner is clearly opposed to nationalization on purely ideological grounds.  America's banks are privately run and owned, and he wants to preserve that.  Isn't he supposed to be concerned with doing "what works"?  Geithner knows the whole point of the exercise:


Treasury Secretary Timothy F. Geithner said Wednesday the administration is working on a comprehensive plan to "repair the financial system."

Which is quite reasonable and I would say pragmatic; X is broken, let's fix X.  Yet here is a candidate solution for fixing X, and yet it is rejected.  Is it because it would not work to fix X?  No, but because it violates some ideological principle Geithner holds - Banks should be privately run.  Why?  Well the WaPo reports:


Explicit nationalization of financial companies has little support among key Obama officials, sources said. Treasury Secretary Timothy F. Geithner and top White House economic adviser Lawrence Summers think governments make poor bank managers and cannot efficiently manage a vast number of institutions, according to some of their associates.

Well, government can hardly do a worse job than the current management, busy gorging on private jets, bonuses and not-lending the TARP funds given to them so that they would lend it because they are actually running living-dead bankrupt institutions (the bonus payments have an oeuvre of looting your own city ahead of a barbarian invasion).

Even so, this reason is offered second and third hand, but as quoted above, when asked directly about it, Geithner's primary objection is ideological, not pragmatic.

What's strange about this, beyond being an object lesson in the futility of trying to eschew ideology, is the inconsistency.  Geithner is appealing to some classic market 101 maxims here in preferring private ownership, yet his plan seems to be one in which investors suffer no consequences for their risked money and poorly run institutions are rewarded by having government buy up their mistakes at inflated price, favouring crummy banks over well managed institutions which are not laden with shitpile.

I must have missed that chapter in Atlas Shrugged.
Tags: , , , , (All Tags)
Print Friendly View Send As Email
Geithner Appeals To Ideology To Resist Nationalization | 63 comments
But I thought... (4.00 / 9)
But the pundits on teevee told me Geithner was a "pragmatist"...

;)

Hasn't Mister Geithner ever heard of nonprofits? (0.00 / 0)
Many nonprofits operate very successfully without the private capitalization of Wall St. Doesn't he have the imagination to conceive of other solutions to our situation? Apparently not. Call it Wall St. blinders.

Speak out for the education our children deserve!
Technically... (0.00 / 0)
...those would also be included in his assessment, since they are still corporations with shareholders, although the shares to not earn any profits...
[ Parent ]
Technically (0.00 / 0)
Nonprofits don't have "shareholders." They have boards of governance that don't even have to be invested in the endeavor.  

Speak out for the education our children deserve!
[ Parent ]
I should have said members... (0.00 / 0)
But, they are still corporations... however, a non-profit can issue voting shares like the Green Bay Packers do...
[ Parent ]
But you get my point (4.00 / 1)
that Geithner's assertion that private ownership is the only  framework for successful economic endeavor is really specious.  

Speak out for the education our children deserve!
[ Parent ]
the objection is stupid for so many reasons (4.00 / 5)
Off the top of my head:

1)  If the point is to get the financial industry working (which I assume means restart lending activities) then nationalization is a surefire win.  If you own the banks, appoint your own CEO and s/he simply says "let there be lending" and it will be, with no bonus or private jet hijinx.

2)  There are numerous examples of large, complex institutions being well managed by government.  Social security, crown corporations, the post office, the military, and on and on.

3)  No one is arguing that government should nationalize the banks and run them indefinitely.  Once the crisis abates, IPO and sell off shares, once 50.1% is in private hands, voila, you've unnationalized them, and away they go.

[ Parent ]
I don't think it is as easy as that.... (4.00 / 1)
...for one thing, you can't just install some government bureaucrat to be CEO, you're going to have to hire someone from the banking industry, and they can be just as corrupt as the guys we have now.  Fannie Mae isn't technically a government institution, but they have a lot of government oversight and influence, and the place was still run by crooks...

By nationalizing the banks, the taxpayers are also incurring ALL of their losses, not just some.  So, the net expense may be trillions... tens of trillions even... overall...

Then, you've got to make the whole thing work, somehow... You give an example of Social Security... which has been around for quite some time, but to manage a bunch of trillion dollar banks... well, that might get tricky, too...  and with that kind of money being controlled by a single entity, the potential for even greater corruption exists as well...

Personally, I don't think there is ANY good solution to the problem... not one...  I actually think that a variant of the bad bank solution is probably the best option if done right... that means closing or forcibly merging banks that are insolvent and making healthy banks take up a decent bunch of bad assets... also getting those bad assets at a huge discount...  If you get them at current market value, you aren't going to lose in the long run, and the government can actually make some money....

Nationalization sounds great as a sound bite... I'm not sure it's the best practical solutoin.

[ Parent ]
It worked for Sweden (4.00 / 5)
How Sweden Solved its banking crisis

So there is real world evidence that letting shareholders take the fall and taking equity in the failing banks works.  Sweden got at least half its money back in the end, and restored its financial sector.

It's not exactly like what I said just above in appointing a government employee as CEO and whatnot, but in terms of "practical" it is evidence this approach can work.

When has buying the shitpile worked?  Has such a thing been tried?

[ Parent ]
Our problems are a lot bigger... (4.00 / 1)
And letting the shareholders crash might have the effect of taking down the rest of the economy with it...

There are big macro issues involved, and I can see why they don't want shareholders to tank...  We're talking about trillions of dollars of bad assets in banks at the moment... Even credit unions are affected...  That's a big hit to take...

I honestly don't know what the best solution is... I don't think there are any good ones...

[ Parent ]
No, this is not correct (4.00 / 7)
By nationalizing banks, we're talking about seizing failed institutions of systemic importance. The seizure costs very little.

Once seized, you fire the managers, shaft the "investors" and give the bond holders a major haircut. Indeed, given the labor market, how difficult do you think it would be to find new competent managers to take over for John Thain, Ken Lewis, DICK Fuld, et at? Not very....

Then you strip out the toxic waste, then sell that to private investors, most likely at firesale prices. It won't matter though, because they were seized, not "purchased" at vastly inflated prices, as is now the plan from the "pragmatists" in the Obama admin.

Then, once you've cleared the books of garbage, you've got an institution you can privatize by any number of means and turn it into a functioning bank. A clear slate. This is a no-brainer. Oh, and it will be much, much faster in turning around the banking system than supporting zombie banks for at least a decade, if not more.

All this entails very little loss for the taxpayer. Treasury gets whatever proceeds are paid for the toxic waste, but since they were seized, that doesn't matter.

We've already done this with the S&L; crisis in the 80s. There's absolutely no reason this can't be done again.... except for one little problem: the predominance of an intellectually, morally, ethically bankrupt ideology that the "Yes We Can" Administration is so desperately clinging to.

You've got to realize that clinging to neo-liberalism means a very long, nasty recession or depression for most Americans.

Sadly, this is precisely what Obama is doing. Obama is willing to put us all into a depression to make himself look "buy-partisan." What gives? I thought he was some kind of "pragmatist!"

No. This is all ideology and we'll all suffer for his devotion to neo-lilberalism.

http://en.wikipedia.org/wiki/N...

PS: Tim "Pay No Taxes" Geithner is now talking about a $4 TRILLION bailout. Think about that for a moment. Think about all the tax increases you and your children and grandchildren will have to pay, just because they can't imagine drifting away from the neo-liberal reservation. Think about 15-18% interest rates. Think about a dead economy headed by a bunch of billionaires who became that way courtesy of the next generation of suckers, I'm sorry, "tax payers."

Socialism never looked more efficient, quite frankly.

[ Parent ]
Yes, (4.00 / 3)
It's the lack of imagination -- the willingness to think of alternate ways to solve problems -- that is blinding Geithner and other to realize other ways out of our economic quagmire. It's what you get when you hire a bunch of insiders and conventional thinkers.

Speak out for the education our children deserve!
[ Parent ]
No, This Is The Voice Of Vested Interests (4.00 / 6)
These people are where they are now for a reason. They exist to serve the status quo ante or better. They are there to further their agenda and redistribute wealth from us to them.

Obama talks about ethics and says "no lobbyists here," but then issues "waivers" to certain people in key positions. Yeah, that makes it all look better, eh? "Hey, they got waivers, it's all okay now!"

They might as well amend the signage in front of Treasury to read: [A Division of Goldman, Welfare Queen & Sachs].

So the conventional thinking goes along with being an insider, because being an insider means serving those interests at the expense of everyone else. What do you supposed Geithner et al will do after "serving"? They'll go back to The Street and make ten times what they made before in return for all the favors they did whilst "serving."

That's the way this game is played. There's no lack of imagination. There's only a lack of patriotism and basic human decency.

[ Parent ]
Delusionarianism -- the true ideology of Wall Street (4.00 / 2)
They still think that only someone from their class, with their experience -- the experience of robbing the powerless -- is competent to do the job. Obama seems to think so too.

Governments don't know how to manage large enterprises -- you still hear that old canard in every country club and Baptist Church in the country. If you tell them that you thought that Roosevelt's government did pretty well with the WPA and WWII, they'll tell you that the WPA was socialism, and that Henry J. Kaiser and Engine Charlie Wilson ran the war.

They can't be bargained with. They can't be reasoned with. They don't feel pity, or remorse, or fear. And they absolutely will not stop, ever, until you are dead. h/t James Cameron/Gale Ann Hurd

I'm not sure that you can attack the system successfully by attacking the individuals who run it, but I'm generally of the opinion that it couldn't hurt. If everywhere they go, they face a barrage of rotten tomatoes, it might at least put a dent in their excess self-esteem.

[ Parent ]
Obama is from the Chicago School (3.00 / 4)
Friedman, Strauss, Hayek and so on. Almost all of Obama's econ advisors are die-hard neo-liberals. This is true to form, given his intellectual origins. I give him points for consistency: like Clinton, he ran as a "liberal" and will govern as a neo-liberal, which is to say a right-winger with manners.

Why so few on the left never picked up on this is beyond me. It was always there for everyone to see.

[ Parent ]
Frankly, I have my doubts (4.00 / 5)
An interesting thesis, but I honestly don't find it persuasive. Obama strikes me as a moral, philosophical and religious thinker rather than an economic or political one. His training as a lawyer seems to be the vehicle through which his moral and political thinking are linked.

He's never struck me as a neoliberal in the economic sense, nor in the foreign policy sense. Instead, I get the impression that he decided early on that any real social progress would have to bow to the impossibility of challenging either in the context of present political realities. In other words, he has the moral sense of a Martin Luther King or a Gandhi, but unlike them he isn't by nature a risk taker.

If he should fail, the root of his failure will undoubtedly lie in that aspect of his character. If he's to succeed, he'll need to be presented with events, or with a political challenge, or both, which force him out of his comfort zone.

So far, his success has insulated him from that unpleasant transformation. If I were his mother, I suppose I'd pray that he'd be kept safe from such a thing. As a citizen of a much beleaguered America, however, I'm forced to hope that it falls on him early, and that he's capable of the growth necessary to transcend his current limitations.

[ Parent ]
uh...couple problems with that... (0.00 / 0)
First, if s/he says "let there be lending at 10%" you've got nowhere else to go if you want a loan. That's it - everywhere. Take it or leave it. The government is going to want to reduce their deficit eventually, or make some money on the deal...it's what banks/government do. Second, when the crisis abates, what makes you think government is just going to give up the power they have in the banking sector when clearly it's more useful to them to have it. I don't think it's human nature to give up power - look at the last 8 year Administration!
[ Parent ]
Not quite to ideologue level (4.00 / 1)
Ideologue would be "We wont do that" or Rush Limbaughs "I hope he fails".

But very ideological .

http://transgendermom.blogspot....

yeah (4.00 / 1)
The definition of "ideologue" is a judgement call.  Hand waving, it is taking one's ideology too far in some sense.  I argue here that Geithner is doing so because he is jeopardizing the primary goal of fixing the financial sector for the secondary goal of preserving private ownership of banks.  Nationalization will achieve the stated aim, and it would be one thing to reject it because you think buying the shitpile will work faster or something, but that's not what's happening.  

So I call him an ideologue.  But its not something I'll fight to the death over.

[ Parent ]
Does anybody believe the (3.43 / 7)
now very old saw that it doesn't matter what Obama's appointees used to do or think before he selected them, because now they're only going to do as he commands, and fulfill his progressive vision?

Can we finally move past that absurdity, on top of the absurdity that Obama's "post-partisanship" is any kind of good idea?

This is just what one would expect when one takes a very inexperienced chief executive and surrounds him with strong voices on matters he knows little about: he defers to them on point after point.

Burry (0.00 / 0)
Quit troll rating things you disagree with.  Hit reply and explain why you think they're wrong.  
[ Parent ]
Money quote (4.00 / 6)
Whatever it takes:

A Treasury spokeswoman said that "while lots of options are on the table, there are no final decisions" on what she described as a "comprehensive plan." She added: "The president has made it clear that he'll do whatever it takes to stabilize our financial system so that we can get credit flowing again to families and businesses."

This post is exactly right. All ideas are not being considered equally, and the reason is ideology.

But really, we knew all along that "non-ideological" actually meant "centrist." :)

Saxby Chambliss

Geithner and Summers (4.00 / 5)
I don't really mind either Geithner or Summers.  However, I'm beginning to really resent Geithner and Summers.  One of those two with a Krugmanesc academic would be fine, but together they are drowning out all reasonable debate.  

No, not pragmatic at all.  And certainly not listening to all sides.

You lost me. (4.00 / 2)
Geithner says there will be a "comprehensive plan" to repair the banking system.  He declines to give details.

He says he would "like to do his best" to "preserve" the private banking system.

We don't know what his final plan will be (neither does he, probably).

But this vague phrase is not only "ideological" but also "inconsistent" and reflecting "market 101 maxims."

It's even more "ideological" because some administration officials say that the govenment "cannot efficiently manage a vast number of institutions."

I have little idea of what exactly would be required to "nationalize" the banking system.  Would there constituionally need to be some sort of compensation to the shareholders?  Would there need to be exemptions carved out of existing securities laws?  Would it be "nationalizing" to simply have Treasury take a majority stake in private banks in return for bailout money?  What duty would the government owe, then, to the remaining shareholders, who will likely have conflicting interests with the people?  Would the entire structure of monetary policy need to be reconsidered, as it currently runs on the fed's ability to incentivize private actors?  

Isn't it quite possible that there are good reasons to "preserve" the present system, without falling into Chicago-school rationales?  Like, maybe, the markets would react badly at a critical juncture?  Or, that perhaps any nationalization program would be too slow, require congresssional approval and court challenges (the government can't just take over private property), so that the fix, whatever its other merits, would just result in years of uncertainty?  Maybe there's a good reason to believe that governments don't manage banking systems well (banks were nationalized, I belive, in Sweden, France, India, and Israel - I'm sure there is some historical data to draw from).

In the United States, where - for better or worse - private property cannot be taken without compensation, it would seem highly doubtful that true nationalization could be acheived.  At most, there could probably be some sort of hybrid management between government and private actors.  Perhaps that is, hand-down, the best option in some people's eyes (I know DeLong likes the idea).  DeLong suggests Congress take large insolvent banks into conservatorship for so long as they are insolvent.
His  proposal doesn't even touch a small bank or one that is solvent.  He suggests Sweden's 1992 nationalization as a model.  But, at the end of the banking crisis in Sweden, the government returned the banks to private hands - like Geithner said, "preserving" the system of private ownership.  The Swedes are free market ideologues too, I suppose.

aoei (4.00 / 1)
Geithner has a primary goal: Fix the financial sector (meaning restore lending levels).

He is willing to subsume that goal to the secondary, ideological goal of keeping the financial sector in private hands.  He explicitly says so.  I'd like to fix X, but only without doing Z.

He has rejected one plan known to work (as in Sweden) which certainly has reputable economists who believe in it, and a solid rationale of how it could work.  Yes, it's possible nationalization might fail for various reasons, but none of those are why Geithner doesn't like it.  

So his objection is ideological, not practical.

BTW, Sweden is an example of using nationalization and liquidating shareholders.  Geithner doesn't want to attempt what Sweden did.

[ Parent ]
I see (0.00 / 0)
you read his mind.  You know that he didn't even read or consider the economists who want to pursue temporary conservatorships/nationalization/liquidation.  He just rolled his eyes and moved on. You were in the room - you saw it.

Or maybe you just read a single quote from a long news conference that appeared in the Politico, and made a dozen inferences to suit your pre-ordained conclusion, that just because you are an ideologue, everyone else must be. (Which, frankly, is the bottom line of this entire "ideology" debate here on openleft, and is terribly similar to the worst idiocy of the right wing echo chamber).  No need to be bothered with what analysis might have been actually done that might underlie the statement - it is just better to take isolated comments (which may be, btw, somewhat insincere and political) as the reflection of someone's deepest thinking.

And you know, as well, that the current US Supreme Court would permit the Treasury to force a sale or liquidation of private stock like Sweden did, and hence the benefits of the Sweden plan are obtainable.  (Of course, the court is MORE conservative and result oriented than when Bush v. Gore was decided...and we should remember Roosevelt had to threaten a bunch of justices who were early prototypes of Scalia and Thomas with expanding the bench before they stopped blocking his initiatives).

And, of course, Sweden itself did exactly what Geithner says he wants to do: retain private banking. So, the Sweden plan reflects exactly the "ideology" that Geithner allegedly espouses - so there isn't even an ideological conflict.  Being that there is no ideological conflict between Geithner's statement and Sweden's plan, Geithner couldn't have rejected it on his stated ideological grounds.

[ Parent ]
Don't forget whose mind this is (4.00 / 2)
It's not as though this single quote is the only record of its workings.
[ Parent ]
Honestly (0.00 / 0)
we are a lot better off without mind reading.  Humans are notoriously bad at it, especially in adversarial situations.

If you want to understand how pernicious framing every battle as "ideology" is, listen to Rush for a couple days.

I learn the damndest things about my ideology from Rush.  I learned, for example, that I think that climate change is a major problem because of my ideology - you see, I hate capitalism, the success of the West, and I idolize primative cultures, with a particular affinity for Islamic societies, except that I, apparently, also want to spread a pagan cult of nature worship.  I also learned that I want to reform healthcare, not because people are suffering when they cannot receive affordable care, but because I believe that, whatever the problem, more government is always the solution, that I hate capitalism, I resent the income and success of doctors, and that I know that, once I secure socialized medicine, the momentum for my plan to make all people dependent on government will be unstoppable, which will fill me with glee because I want to crush their spirits and control them.

As I listen to these rantings, I realize that the psychology at work stems from the fact that his audience is about as ideological as people can be, such that they can't conceive of other people as less rigidly ideological.  

Whenever people start talking about real world politics as if every conflict is ideological, and examine the psyches of proponents, rather than the merits of policies, they start making huge assumptions about people they don't know, and don't want to bother to understand.  Then things get very stupid, very quickly, and quite a waste of time.

[ Parent ]
On protesting too much (4.00 / 1)
You have to ignore a rather large number of significant distinctions to make the claim that you make of an equivalence between Limbaugh and De Groot. To observe that the most elegant explanation of Geithner's allegiance to a private banking system in the face of a catastrophic failure of that system is that it's ideological is eminently reasonable, given that it's based on the history of Geithner's deeds as well as his publicly expressed thoughts.

To compare this to what Limbaugh does smacks of a vast, excluded middle, which is at least as great an offense against reason as those you attribute to Daniel. You don't like conflict, and you don't like rough language, and you don't like snap judgments, that part I get. Will you get it if I say to you, physician, heal thyself?

[ Parent ]
Off track (0.00 / 0)
Apparently one can't mention Limbaugh without short-circuiting a discussion.  Sort of a Goodwin's Law of Openleft, maybe.

I could find an example from the "excluded middle," but it wouldn't be nearly as striking.

I don't really know what to make of the argument or observation here.  The Obama administration is tackling a tremendously complex problem.  There are many economists who have proposed solutions, and every solution has myriad challenges.

In the midst of this, Geithner utters a sentence that he would "like" to "preserve" private banking.  And, what, exactly, am I to make of this tepid statement?  I am supposed to assume that he rejected perfectly good, feasible plans because he was disgusted at the idea that the government would take a controlling stake in banks?  Since none of us know what the final plan will be, it all seems rather premature.  

I'm at a loss as to why this data should be significant.  It doesn't affect the analysis of the Sweden plan or any other plan - they are either good or bad ideas.  It doesn't affect my analysis of whatever Geithner comes up with - it will be analyzed to death, and I will pay attention to people like DeLong say about it, whom I read semi-daily.

Geithner MAY be rejecting good ideas out of a prejudice, or he may be rejecting bad ideas out of a prejudice, or he may be actually using objective analysis to come to a conclusion, listening to all sides.  And a public statement such as he'd "like" to "preserve" private banking is an extremely politic remark, the sort of thing that sooths markets and makes Lou Dobbs breathe easier - whether Geithner has seriously considered nationalization or not.

But the only real question is: what will the plan be, and is it any good?  The rest is an ad hominem.  It assumes that people can't change their minds.  It assumes that one's public statements are reflective or one's private thoughts.  It assumes that people who are hostile to other people's ideas are in a position to accurately characterize them.  All of which is absurd, and a waste of time.

[ Parent ]
Not absurd, no.... (4.00 / 6)
Human beings are excellent at pattern recognition -- one might almost say that it's our signature talent -- and everything is grist for the mill. To deny this is dishonest, and to try to forbid us taking advantage of it is presumptuous.

If one says: Geithner is ugly, and he smells bad, so we can't trust his economic policy, one is making an ad hominem argument. If one says: Everything Geithner has said or done in the past 20 years indicates an allegiance to a set of economic assumptions which we know to be false, and yet he still speaks of preserving them, that's simply a judgment which takes into account the observable evidence. It may still be wrong, of course, just as you say, but it's neither injudicious, malevolent, nor absurd.

[ Parent ]
And in this case... (4.00 / 5)
...you'd also be right in saying so.  It's not just Geithner. It's Summers, Goolsbee, Rubin, Bernanke and many others. Rubin, who just left Shitibank with hat in hand, a $114 Million hat, just after laying off 75,000 people, is now giving advice to Obama? Why on earth would anyone expect anything less than failure from this crew? Of course, failure depends on who's on the losing end of things, doesn't it?

The change of admins only really meant a handful of banking/financial/econ people leaving DC. The bulk of them are still there, doing exactly the same thing.  

[ Parent ]
Thanks for proving my point. (0.00 / 1)
This is the end result of the poster's argument:

"Why would anyone expect anything less than failure from this crew?"

See, no understanding or analysis - no work - is required.  Reject the thinker, and you don't have to worry about confronting his thought.

Perfect ad hominen argument - it's what it's all about.

[ Parent ]
My pattern recognition (0.00 / 0)
1.  I observe that people involved in conflict, whether it be politics, divorce, sports, or war, are generally terrible at pattern recognition when it comes to the opponent.

2.  I observe that people with sophisticated knowledge tend to have nuanced views that aren't readily discernable from outsiders.  Many people can't distinguish the ideas of Camus from Sartre, or Geithner from Friedman.

3.  I observe that the more people in argument focus on motivation or inner states of the participants, the less they focus on ideas.

I'm not sure why you would consider these views dishonest.

[ Parent ]
These views are certainly not dishonest, nor did I say they were (4.00 / 2)
My responses:

1) Priorities. First recognize the threat and defend against it. If there is a moment of respite, and a place of safety, use the consequent leisure to reassess all the variables. Sun Tzu was justly famous for this. The Israelis consider it fatuous.

2) This is an argument based principally on class, and, I might add, a certain form of elitist myopeia which is unfortunately all too common.

3) You aren't looking in the same places I am. Either that, or once again, you're arguing by assertion.

[ Parent ]
aoei (4.00 / 3)
I'm going to skip the insults your contrived excuses for Geithner explicitly stating his ideological objection to nationalization (yes, "reading his mind").  You don't seem to get that Sweden's plan is what Geithner is more or less rejecting:  Sweden let the shareholders soak up the losses by nationalizing them to a large degree.  Yes, they re-privitized them after the crisis was over.  That's what I would expect to happen in a US nationalization scheme.

You accuse me of mind reading and then contrive a pile of objections that Geithner might be relying on in rejecting nationalization (which you conceive as being akin to Chavez forcibly nationalizing the oil companies).  Sweden didn't send armed marshals into its banks.  They said "write down your losses, and accept our terms or go it on your own."  Banks (run by their boards, elected by the private shareholders) could take the government's money to recapitalize, or find their own way to survive.  Only one swedish bank was able to go it alone.  

By the way, AIG was already nationalized.  I don't see John Roberts rushing to block that one just yet.  

But apparently for noting an ideologically based decision by an Obama official, I am now as bad as the right wing echo chamber.  You know, the people who went after a 12 year old boy over SCHIP, or convinced themselves an Iraqi police captain didn't exist.  Yeah, fair comparison.

[ Parent ]
Contrive? (0.00 / 0)
I speculate.  You speculate.  I understand that I am speculating.  You think you know the truth about what other people think.  I could speculate what that means about you, but I would not presume it to be the truth.

And oddly, it is important to you not only WHAT an idea or policy is, but WHO thought of it.  I'm rather in favor of blind grading.  What, exactly, is the point of focusing on the ideology of the actor, rather than the merits of an idea?  I can't think of one.  If the idea has bad foundations, attack the foundations.  But don't presume you know anything about someone you haven't met.

You don't know why Geithner rejected the Sweden plan (in fact, neither of us knows if he rejects it in all circumstances).  If you like the Sweden plan, great.  Personally, I like it because we have suffered from such an extreme problem with controlling how bailout funds are spent - but I don't know everything about banks or the financial crisis.  And, no, I DON'T see some vast ideological difference between a brief hiatus from private ownership, and extensive government capital and plans to reform and repair the system short of taking a brief hiatus - rather I see primarily a practical, political distinction, between a course that is less controversial and that may cause less pain to certain political contributors.  

Identifying the ideology of the proponent rather than focusing on the merits of an idea is simple ad hominem argument.  There's really no use for it.  

[ Parent ]
not at all ad hominem (4.00 / 3)
Daniel's not asking anyone to support nationalization because Geithner opposes it and he's a bad person. He's complaining that Geithner is offering stupid reasons for ruling out a major possible solution that many folks who've been speaking sense about the financial collapse from the beginning are now supporting. If Geithner has better reasons, he should offer them. I don't know why he'd want keep good reasons secret; it makes it look like he doesn't have any. All sorts of bad reasons then come to mind -- eg, ideological hangups.
[ Parent ]
Well (0.00 / 0)
1.  There are many reasons to keep "good" reasons secret.  Saying "I'd love to nationalize the banks, but I think the Republicans would filibuster and the Supreme Court would block it" won't play well on the CBS Nightly News.  I find it strange that anyone would take any public official's statement as to why he took a certain position to be reflective of his actual reasoning.

2.  It isn't a "stupid" reason, just because you, or someone else, disagrees with it.  Obviously everyone seems to agree that the private banking system is favored solution because no one seems to consider long term nationalization a reasonable solution.  If preserving the private banking system is an acknowledged good, then there must be generally recognized merits to that system that are lost during the period of nationalization.  No one was talking about nationalizing banks three years ago, and no one is talking about keeping them nationalized five years from now.  Nationalization is offered as an extreme and temporary measure.  I don't know why you would think that it is "stupid" to try to avoid a temporary and extreme measure, if one believed as a practical matter that the preservation of the private system - everyone's goal - could be accomplished while maintaining continuity in the system.

In other words, it is an entirely unexceptional statement.

[ Parent ]
Talk about a long, strained argument (4.00 / 2)
and a strained reading.

Look, what did the very quote from the NY Times actually say in its first sentence?

He discouraged speculation that the plan would include the nationalization of some banks.

Now, unless the NY Times reporter himself got the significance of what Geithner was saying or implying quite wrong, Geithner would certainly appear to be ruling out a solution like that of Sweden, which most certainly did involve nationalization of banks -- even if temporary (though for some number of years). I should think that if Geithner really had in mind to exclude only permanent nationalizations of banks, and was entertaining the temporary nationalization of banks, then Geithner would have made that clear, lest he be misunderstood on that crucial point.  

And on what grounds did Geithner reject the possibility of nationalization of banks? Well, not because any of the sorts of problems that, say, the Swedish solution might have posed from a practical point of view, right? I don't see how one can rightly characterize the problems Geithner raises as being other than ideological.  

[ Parent ]
Really? (0.00 / 0)
"Well, not because any of the sorts of problems that, say, the Swedish solution might have posed from a practical point of view, right?"

Wrong.  Geithner could almost certainly talk in excruciating detail about every aspect of a temporary nationalization, its pros and cons.  It has been written about extensively, and there is no way he is unaware of the analysis.

To suggest that he isn't conversant with the practical benefits and obstacles to nationalization is absurd.  Whether he fairly evaluated the option is a question that neither you, nor I, know.  Nor does his prejudice affect whether either the Swedish solution or his ultimate solution is good nor bad, so it is exceeding odd to dwell on it.

 

[ Parent ]
Your argument is (4.00 / 2)
just confused.

Look, I'm quite sure that he is aware of the ins-and-outs of the Swedish example. Given that it is widely acknowledged as being a successful case, that it what is so breathtaking about Geithner's dismissal of even the possibility of following the Swedish example.

Again, look at the explanation he offered for the sweeping dismissal he gave of nationalization, which, of course, would subsume the Swedish example. It says nothing about practical problems in the Swedish example, particular things that might have gone wrong in that case that he believes we should avoid, or particular reasons why that example would not apply in our current case.

No, instead his very general reasons are entirely based on his insistence that we follow a purely market based, "private" approach (though how a market based, "private" approach is compatible with enormous government handouts is of course never addressed).

That, you see, is ideology speaking, whether you admit to it or not.

I see, of course, that you won't admit to it.

[ Parent ]
A waste of effort (0.00 / 0)
Once again, slowly.

The statement made isn't particularly ideological, since even the Swedes and DeLong want to preserve the private system of banking.

There may be someone who favors long term nationalization of banks.  But it appears that a wide range of views exist within the band of opinion that states "nationalization is a temporary measure that should be undertaken in only extreme circumstances."  To the best of my knowledge, not even Geithner has stated that he has ruled out nationalization in all circumstances - just that it is unlikely in this circumstance.  We have no hint of where he stands on that spectrum, if anywhere, from this statement.  Nor is it particularly profitable to try to extrapolate specific views on specific policies from other specific views on other specific policies.

Even those who you imagine are ideologically more flexible than you imagine Geithner to be could easily make the statement that nationalization isn't appropriate because they would prefer to preserve private banking - it would be entirely dependent on the severity of the crisis and whether the specific nationalization remedy were appropriate to the circumstances and realistically acheivable.

Hence, the statement itself doesn't reflect any particular ideology.

Moreover, even if Geithner said something more definite, like, for example "we categorically reject any proposals that result in the government taking a management stake in banks," it really says nothing concrete about the process by which the conclusion was reached.  You have no idea of whether proposals were objectively analyzed and found wanting.  At a press conference, one really wouldn't expect that he would go into detail about his analysis of a complex, controversial, and rejected proposal.  He'd be an idiot to do so, whether his view was ideologically driven or not.  (BTW, this is much bigger than an economic question.  Just because some economist says something is good economic policy doesn't mean that it will come to fruitition, and just because a solution was appropriate for one crisis does not mean it is appropriate and politically and legally viable in another).  

Even if there were a categorical rejection of a proposal, there isn't any reason to attribute it to ideology, especially on the basis of such a tepid statement.  And, regardless of whether the rejection of the proposal is ideological or not, one can't really evaluate how important the issue is until a plan is proposed and analyzed.  Hence, the analysis of the tepid statement isn't just silly, it is astoundingly pointless.  The only function, as noted, is to set up an ad hominem argument - that the proposal that eventually comes out is a failure from the start, because you believe you have ideological differences with the proponent.  Why waste time teeing up a fallacious argument?

I really shouldn't take the bait on these bone-stupid posts that show up here on "ideology."  They are consistently jaw-droppingly sophmoric and irrelevant.  Somehow I get dragged in, again.  Guess I had too much time on my hands yesterday.

[ Parent ]
Contrive (4.00 / 1)
Was a poor word choice.  The point stands though that you are speculating about possible pragmatic reasons to reject nationalization, but those aren't what Geithner said.  So I do know why he rejected nationalization, he said so - because it violates private ownership.  Why should I not take that at face value?  Sure there may be other reasons, but when asked about it, he gave what I reasonably assume was the first thing that came to mind as his reason, which was ideological in nature.

And by the way, I think you believe "ideology" to be a bad thing, and thus that someone having an ideological reason for something is a criticism.  In general it is descriptive, and I am critical because of all the (futile IMO) attempts to pretend there is some kind of non-ideological pragmatism that smart people can rely on while extremists like me remain mired in ideology.  I think this is false and just an attempt to marginalize other approaches.

[ Parent ]
No, you don't (0.00 / 0)
know why Geithner rejected nationalization, and neither do I.  

I have no problem with ideological people.  Ideological people do a great deal of the heavy lifting in life.  I do object to people who want to water down the concept of "ideology" until it is meaningless - which for some reason is a theme on openleft.  There is such a thing as pragmatism and objectivity.  

This comes up, apparently, because the post partisan adminstration and media want to claim that "ideological" or "partisan" approaches are suspect.  What I don't get is why there is an attempt to claim "everyone's an ideologue," rather than "I'm an ideologue, and I'm proud."

The second point that I have a disagreement with is - as I've said - spending time portraying the ideology of the opponent.  First, the conclusion usually is wrong.  Second, even if the conclusion isn't initially wrong, dividing into ideologies immediately descends into tribalism.  Third, for practical purposes, it isn't so important that you correctly identify your opponent's ideology as that you portray him in an effective way, regardless of whether it is reflective of the truth.  

I do apologize for my tone.  This whole discussion really just mystifies me.  

[ Parent ]
A fair comparison. (0.00 / 0)
I didn't say you were as bad as Rush.  I said that making every battle ideological is a bad way to reason.  Rush reasons badly most of the time.  He is an example of bad reasoning.  If you are so offended by the example that you can follow the logic, I'll find another one.
[ Parent ]
ideology? (4.00 / 2)
I think your critique is correct but ideology isn't necessarily at play. It seems Geithner is talking about "preserving the private banking system" as a euphemism for the administration's preference to continue giving money away without condition instead of acquiring ownership in exchange.

As you note, nationalization doesn't threaten private property, and of course Geithner knows that. What he really means is that he prefers that the current (mostly enormously wealthy) shareholders retain ownership while the public pays the astronomical bills, without condition. That preference may be ideologically-motivated, but he may just be expressing the Wall Street interests that have long surrounded him. Either way, it's not a nice thing to tell the public, so he found a nicer way to say it.

[ Parent ]
AIG (0.00 / 0)
was a complex transaction.  As I understand it, the government seized AIG in a conservatorship then offered cash to the company in a deal it couldn't refuse.  There is specific authorization for conservatorship, but not for the purchase of assets.  The conversion of assets was, on some level, voluntary on the part of the corporate board.  It is possible that I misunderstand this, but that is how I thought it worked.

If, for example, Bank of America was subject to the same sort of conservatorship procedure, the same transaction could be attempted, but Bank of America might be strong enough to reject the request for an equity stake.  I don't know whether Bank of America could be taken into conservatorship.

But, without that at least appearance of voluntariness, you run into a Youngstown Sheet and Tube problem, I think.


[ Parent ]
My diary puts some of this together (0.00 / 0)
and has entertaining rants as well. A great deal of our problem now, the fact econ policy makers don't know what to do other than the same old thing, has its roots in efficient markets theory and its cultlike domination over everyone who's anyone's economic policy thinking.

Here's how the diary starts out:

New Bank Bailout Could Cost $2 Trillion
Deborah Solomon et al
JANUARY 29, 2009

Government officials seeking to revamp the U.S. financial bailout have discussed spending another $1 trillion to $2 trillion to help restore banks to health, according to people familiar with the matter.

President Barack Obama's new administration is wrestling with how to stem the continuing loss of confidence in the financial system, as it divides up the remaining $350 billion from the $700 billion Troubled Asset Relief Program launched last fall. . . .

The administration, which could announce its plans within days, hasn't yet made a determination on the final shape of its new proposal, and the exact details could change. Among the issues officials are wrestling with: How to fix damaged financial institutions without ending up owning them.

((Why!? They're insolvent otherwise. We should own them and fire their execs and give their fool investors nothing! Or not help them and invest in solvent banks with competent management, even if we have to start those up from scratch. More on the obsequious concern for the financier class from Barry Ritholtz and Josh Marshall further down.)) . . .

http://openleft.com/showDiary....

You've probably read the Josh Marshall paragraphs but you'd love the Barry Ritholtz rant against Geithner's attitude.

Got some Jeremy Grantham rant too, which specifically hammers the obstructiveness of efficient markets theory in the situation we have now, where markets have failed massively. But nonetheless the policy makers handed and will hand (no difference Bush to Obama administrations in this respect) trillions to the banks cuz they believe that 'market forces' magically will 'make' banks lend, or if they don't lend then banks not doing so must have been or must be what's best for all. Insane and foreboding.

by the way, it's not just 'must be private banking system' (4.00 / 5)
It's 'must be private banking system with exactly the same private banks mismanaged into insolvency (by my great friends who donated so much to Obama's campaign).'

Even if you believe private banks are best for managing a financial system, why does it have to be those private banks? Why doesn't the U.S. put its money in solvent banks, or start some new private banks and finance them with a trillion in assets (and of course no debt) on condition they lend the assets out?

That's actually what part of the bad bank plan would be... (0.00 / 0)
...insolvent banks would be shut down or merged with solvent ones, then the good banks would be divested of enough bad assets to keep them afloat...  it reduces what the US has to assume in bad loans, otherwise, it would be trillions of dollars...
[ Parent ]
Oh, so they're shutting down or merging Citibank, B of A, Chase, Goldman Sachs etc. (4.00 / 1)
with good banks, which will take over management of the new entities? Hadn't heard that.

Anyway, the point again is, even if the above were true, what is the point of that? Why merge an insolvent institution with a solvent one? Let the insolvent one fail, protect depositors, let gamblers who bet on those corporations lose their investment. That is obviously what needed to be done, what still needs to be done, and what likely will be done after wasting $2-3 trillion trying to breathe life into the dead.

And where will that absurd amount of money have disappeared to? Not into lending into the economy, that's for sure.

[ Parent ]
you wish (4.00 / 1)
they have zero intention of paying market rate for this crap or closing down any banks. the "bad bank" idea is their slick way of giving banks free money - the point it to over pay for the assets on purpose to inject cash to the banks. otherwise the bad bank idea is stupid. If they want to force the banks into insolvency FDIC could do it today - seize the banks, cram the equity until the banks have enough capital on hand to suffer whatever loses the bad assets might ultimately mount to. and then the govt could avoid all the headaches of owning crap or valuing it or taking on debt to pay for it.

Bad Bank = "we must not hurt the financial oligarchs (our donors) cough - or pension funds - cough (our unionized gotv accomplices)"

~* the * Will * to go on *~

[ Parent ]
honestly (0.00 / 0)
i believe its a good idea to save these institutions because the legal process of unwinding them is grueling and would hurt the general health of the system. so there is some value to preserving the operations and avoiding all the nasty paper work of a real bankruptcy, in that its much smoother to cleansing the system. its the good (equity / bond beat down) without the bad (courts, paperwork, massive layoffs, new hiring, whatever else it takes to set up a trillion dollar bank operation).

~* the * Will * to go on *~
[ Parent ]
Obama's economists "Market Fundamentalists" (4.00 / 3)
There is this article on Clemens' Washington Note, that talks about Obama's economic team - that they are all acolytes of Rubin, and not very open at all to outside opinions. He said Soros calls them the "Market Fundamentalists". The article is an eye-opener, here:

http://www.thewashingtonnote.c...

I think this is something we could challenge Obama on, in some kind of sustained way. He really needs people's opinions outside this group.

The money quote (4.00 / 3)
...my point is that Obama has no one on board who essentially is considered an economic heavyweight who thinks that America's domestic covenant, or social contract, with its citizens must be redesigned.

I would only add that if it is not redesigned, we are very likely to wind up a banana republic in the short run, and in the long run face virtually uncontrollable social upheavals the likes of which most of these financial wizard think were long ago banished into history along with the business cycle.

[ Parent ]
William, you and me (4.00 / 1)
are going to be best friends soon.

~* the * Will * to go on *~
[ Parent ]
Uh-oh (4.00 / 1)
Does this mean you're gonna want to borrow my Che Guevara tee shirt?

Seriously, though, don't you wonder how they thought a capitalist economy could continue to function with 30 years of continuous and accelerating downward pressure on wages and benefits? Even before they drove their own house of cards into collapse, the odds that anything like what they were aiming at could possibly be stable were essentially zero. Even Henry Ford -- bless his paternalistic, racist soul -- knew better than that.

[ Parent ]
We, the people (4.00 / 1)
Are the terms of the argument framed correctly? Is it really an issue of private sector versus national sector? Or is it criminal corruption versus honesty?

The US Fed and banking sector is in the hands of people who have a vested interest in destroying the economy with one arm so that they can buy up the assets at rock bottom prices with the other. The means for this destruction of value include inflation and deflation, controlled by the Fed's printing presses in the hands of a small group of private individuals since the Act of 1871. Timothy Geithner talkes about "we...we...we..." all the time. But who is the "we" that is profitting from the current system? Look at the devastated economy of the US today, a direct result of "we"'s actions, look at the instability of its political system, and ask yourself: can we, the people, accept much more of this huge transfer of national wealth into the hands of a few via the mechanism of bankruptcy. The trillions should be used to pay off people's mortages. In 1929, a working man who kept his wife and family owned enough to buy 90 per cent of his house. Today, thanks to the economic policies of "We," labour has been so devaluaed in relation to capital, that two graduates working full time cannot get on the housing ladder except by taking a huge mortgage, which compels them to pay high interest on their tiny income for the rest of their life to "we", and when they can no longer pay the mortgage after losing their job because "we" has engineered an economic crash, to lose the roof over their head and starve...In the meantime, "we" buys up the houses for a song, ready to rent them out.

As Thomas Jefferson said: "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Perhaps someone should clue Geithner in (0.00 / 0)
that he is now working for the federal government and his very involvement is the result of the complete failure of a "financial system that is run by private shareholders, managed by private institutions". Furthermore, he seems to be completely fine with the "private shareholders" and "private institutions" nationalizing their losses between TARP and the "bad bank". Timmy, its time to nationalize the banks.

"Never separate the life you live from the words you speak" -Paul Wellstone
he knows -- he worked for the Fed here in NY -- (0.00 / 0)
he's well aware, and was chosen explicitly to protect and prop up the current system (as was Summers and all the others in the administration)

they all believe in protecting the status quo at any cost --  Socializing the massive costs of all their actions, and ensuring that the profits remain in private hands -- and that all regulation and accountability entirely remains the responsibility of shareholders/boards, if at all.

[ Parent ]
One might even call Treasury Secretary Geithner an ideologue (0.00 / 0)
or Idiot for short.

~* the * Will * to go on *~
related -- BOA (Biden's owners): we're giving them far more than their market cap -- (0.00 / 0)
it's way beyond "preserving" the private system -- it's our government working solely to strengthen and increase their profits, market and stock value, etc -- no matter what.

"So Bank of America wants another $80 billion of our money. Their current market cap: 33.52B"
--
http://oxdown.firedoglake.com/... (links there)
Geithner Appeals To Ideology To Resist Nationalization | 63 comments
Donate to Open Left
PREMIUM AD

ADVERTISEMENTS


MENU

OpenLeft in your inbox!

 

Or, subscribe to each author individually.
LIBERAL INSTITUTIONS
STATE BLOGS
QUICK HITS

Home | RSS/XML Feed | Register | Contact

  © OpenLeft 2007-2008, Powered by SoapBlox