For some time, we have been reading about the pros and cons of nationalizing the banking system in the United States. There are some out there who are staunch opponents of any sort of nationalization, equating it with socialism. Others believe nationalizing the system today is the only real way to address the current morass by taking the pain and starting a real process of recovery rather than wading in the muck for years or even decades to come. Many other points of view lie somewhere in between.The American people have been led astray on this topic. Our banking system has been in the midst of nationalization since last October when a frantic Wall Street, led by then-Treasury Secretary and former Goldman Sachs chief Hank Paulson, strong-armed Congress into believing the sky would fall unless the government gave $700 billion in taxpayer dollars to Wall Street, no strings attached, in order to “save the failed credit markets.”We all know that did not work. The plan laid out by Paulson to buy toxic assets in order to shore up the liabilities side of the balance sheet was never implemented. After all, if a company is failing, it needs to sell its good assets to raise capital. It cannot sell its junk and expect to raise much cash. So in the end, it was determined by the brain trust in D.C. to simply give these failing institutions boatloads of money in hopes they would commence lending.Once American tax dollars were introduced as the primary source of funding failed institutions, and once the U.S. Government became the not-so-invisible hand that picks winners and losers, the system had begun the process of nationalization. After all, if our system was based on a free market capitalist model, these institutions would fail because the high risks that generated huge returns during the feast proved too risky during the famine. In the real world, highly leveraged debt, balanced precariously on top of worthless assets, leads to the collapse of financial institutions. But in the current climate, due to taxpayer bailouts and government intervention (i.e., partial nationalization), zero risk leads to high returns and the very perpetrators are allowed to keep their cozy positions without repercussion. This process gravitates against any meaningful change and will continue to doom the taxpayers to generations of debt. The definition of insanity is doing the same thing repeatedly and expecting different results. How can we expect these institutions to change their behavior if we keep kowtowing to them?We’ve now arrived at TARP II. With people as far to the right as Alan Greenspan and Sen. Lindsay Graham (R-SC), and most recently the New York Times editorial page talking nationalization, the Obama administration refuses to consider the option. This is phony! In fact, they have already chosen nationalization for the good of the financial elite by taking from the taxpayers to bail out Wall Street. Banks are now being compelled to undergo some sort of “Stress Test” overseen by the government during the course of the next sixty days in order to determine their viability should conditions worsen. This is the biggest line of bull I have ever heard! These financial mega- giants spend millions each year dissecting algorithms, evaluating market projections, and utilizing every forecasting tool one can imagine. How is it that the U.S. Government will, in a quick look, be able to ascertain survivability? In reality, they can’t and they don’t intend to. Every reliable model already shows that these institutions are doomed to failure. Their debt problem is getting worse not better. There is no end in sight to plummeting home values, commercial real estate loans are coming due at an unprecedented pace, unemployment is growing at 600,000 people per month, and an overextended consumer will bring credit card default rates to record levels for the foreseeable future. The Obama bank nationalization program looks much like that of George W. Bush. The government seems intent that most of the zombies will continue to function while sucking the blood of taxpayers. Since all of the god-like policy makers come from within the system, we can be certain that the process will be anything but objective. Meanwhile, the government is buying time for shareholders and their cronies at the top of these failed institutions instead of implementing policy for the good of the American public. Given the current track record, one can be certain TARP III is already being written, and it has already been determined, not unlike the situation with AIG, that since we’ve already put so many billions into the system we must continue to throw good money after badWe need to let these insolvent institutions fail because their failure is in the best of interest of the public. We need to backstop the losses, fire the boards and executives, dilute shareholder value to market value, and sell off good assets to private buyers whose balance sheets remain solvent. Once markets start to open up for the bad assets the government has backstopped, they can be sold off at true market value and gradually worked back into the system. Concurrently, we could create, at least for a period of time, a true National Bank free of bad debt, free of shareholders, and free of greedy CEOs. This bank would be funded with taxpayer dollars, would lend at manageable ratios, and would offer low consumer rates. The cost to the taxpayer to rebuild a better system would no doubt be much less as we would not be burdened with the unmanageable amount of debt dragging down the existing system. We need to recognize that our existing system is not too big to fail; in fact, it’s too big to save.We are following in the footsteps of Japan in the 1990’s. One can be certain we will lose more than a decade if we don’t stop making our decisions based on what’s best for Wall Street, and not based on what’s best for Main Street.
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