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Obama: Nationalization "Wouldn't Make Sense"
In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.
But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:
[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.
True, Obama, like Geithner, has always seemed skeptical of nationalization. But his answer to ABC would appear to go further than he yet has in declaring that he'll avoid adopting any version of that approach.
Of course, things might look different once we get done with these "stress tests," and find out how many major banks are truly insolvent. But as of now, the president seems dead set against even short term nationalization.
Josh
Zachary
I would read that statement differently.
I hear Obama saying that the primary objection to nationalization is the scale of the management problem it presents. That sounds to me like a rationale for triage -- nationalizing *some* banks while trying to save others.
I also think you've got to read all statements on this topic with an understanding that one of the biggest objections to using the n-word is the possibility that it would generate a self-fulfilling panic. So I guarantee you that they are not going to say "we're open to nationalization." We may wake up one day to find out that it's happening. But they won't announce that it's happening.
All that being said, it remains unclear to me. I think Krugman has the right key word: Rorschach.
February 10, 2009 7:19 PM | Reply | Permalink
I just saw the interview segment. I don't see any other way to read what he said. It was a very clear no, he said not for this huge system and not for this country. It was about as clear as he ever gets. There was even a tinge of ideological belief there, rare for his interview answers.
Where there was wiggle room was that it was a general question which presumed nationalizing the entire banking system, not anything specific like "why not nationalize this or that until this or that recovers?" But I also got the impression that he was quite grateful that it was so general, so that he could express ideological belief against it.
February 11, 2009 12:03 AM | Reply | Permalink
I also think Josh is right that one way to read the Rorschach blot is to look at bank stocks.
They tanked today. That makes me suspect that well-informed observers believe bankruptcy and/or nationalization are very much on the table.
February 10, 2009 7:25 PM | Reply | Permalink
The heads up on this interview is most appreciated!
February 10, 2009 7:25 PM | Reply | Permalink
Let me see if I understand things correctly. It is bad to own that which we purchase. It is better just to give the money to those who don't know how to own?
Priceless ...
February 10, 2009 7:37 PM | Reply | Permalink
I had a similar reaction: Nationalization presents too big of a management problem, but managing the bailout doesn't?
Making sure the bailout money is used properly is best done from the outside than from the inside?
Hmm. I wonder if Obama has fallen for the "running a bank is really, really hard and requires a ton of expertise" rationale that bank executives use to justify their enormous compensation packages.
February 10, 2009 8:16 PM | Reply | Permalink
Of course, there is another possibility: Obama has come to believe that a bank bailout, whatever its form, is impossible to manage properly. It's going to be a mess, just like TARP has been, no matter what. So his solution is to do as little as possible. Hence Gethiner's detail-free plan.
If Obama believes this, he can't come out and say it, because -- well, we all know what would happen. But if he did believe it, then he would do just what he's doing: keep talking about helping the banks, but do very little.
February 10, 2009 8:21 PM | Reply | Permalink
"our assessment was that it wouldn't make sense. And we also have different traditions in this country."
That sounds like "I know nationalization is a word that is beyond taboo and I can't go there" I just hope they have all options on the table.
February 10, 2009 7:56 PM | Reply | Permalink
Obama is into discussing things. If he is discussing it, it isn't off the table. I'm just glad he acknowledged the Sweden model and demonstrated a basic understanding of it. He's saying- here is a plan that worked, we can't go there, as long as American luxury can insist on not going there... So if we're fine in a month, no Swedish plan!
February 10, 2009 9:25 PM | Reply | Permalink
Sweden also had fewer resources. Considering the size of the Treasury in each country, we could nationalize and rehabilitate a lot more banking assets in this country than Sweden did.
February 10, 2009 10:47 PM | Reply | Permalink
It is truly sads to see the lengths to which Obama is going to protect those rotten bastards in the banks. They may have screwed the entire planet's economy on all those bad mortgages and other scams but they sure invested well in our President who is apparently quite loyal to them and their interests this year. Obama and his buds are screwing up on this banking thing because of their all too cozy relationships with Wall Street. I wish I could think of some way to jolt reality into the President so he could see how badly he's about to screw the average people. I really believe he doesn't get it.
February 10, 2009 10:51 PM | Reply | Permalink
Talk in the plan about buying toxic assets is nonsense.
What's wrong with the classic way of bank regulation: Examine the books. If they're insolvent, close them on a Saturday, pay off depositors, and part out the rest of the portfolio. Bankruptcy courts do this stuff all the time.
The key is to keep it all orderly, so that the public doesn't panic & cause runs on the banks. And forget the markets. They'll react badly no matter what.
February 10, 2009 10:57 PM | Reply | Permalink
What's wrong, unfortunately, is that FDIC doesn't have anywhere near enough money to pay off all the depositors of the banks that probably should be closed. That's what makes this such a sticky problem.
February 11, 2009 9:01 AM | Reply | Permalink
Easy, don't expect to pay them all off. No need to bailout bond holders, for instance.
but I believe FDIC is vastly underfunded since the limits on insurance were raised. That was, I believe, a big mistake. Some raise would have been fine, but going to $500K at once was a bad move.
February 11, 2009 7:58 PM | Reply | Permalink
I bet more people work for our Military (including contractors) then the banking system.
February 10, 2009 11:26 PM | Reply | Permalink
The moral of the story is that if you elect a president whose economic team consists of the people who lay the foundation in the 1990s for the mess that Bush built over the last eight years, you shouldn't expect that president to generate ideas the repudiate the mistakes that got us into this mess.
February 10, 2009 11:40 PM | Reply | Permalink
MESSAGE!
February 11, 2009 9:13 AM | Reply | Permalink
Nationalization isn't necessarily that much different from RTC for FSLIC institutions a generation ago.
So if Obama is rejecting nationalization as a general strategy, that hardly rules out reconstructing a failing big bank. But it does hint that he wants the TARP scheme to work. And given that hundreds of banks are now already quasi-nationalized, it might be enough depending on what losses we are willing to absorb.
I'm against absorbing "losses" which in fact flow to gamblers or crooks.
http://tpmcafe.talkingpointsmemo.com/talk/blogs/eds/2009/02/once-again-nyt-paints-a-foolis.php
February 11, 2009 1:56 AM | Reply | Permalink
I wouldn't worry too much about what Obama said. There are three rules to nationalization
1. Don't talk about nationalization
2. Don't talk about nationalization
3. nationalize!
You don't wave the gun around until you intend to pull the trigger.
February 11, 2009 8:12 AM | Reply | Permalink
I tend to agree with this. I don't see that interview as actually taking any options off the table. But he's surely not going to telegraph that particular option way in advance- he's a lot smarter than that.
February 11, 2009 9:03 AM | Reply | Permalink
I know what you mean, but the gun is [about to be] pointed at Obama in this case.
"Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question."
February 11, 2009 3:09 PM | Reply | Permalink
I know what you mean, but the gun is [about to be] pointed at Obama in this case.
"Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question."
February 11, 2009 3:12 PM | Reply | Permalink
Yes, Martin Wolf and his beebee gun of hyperbole is scary indeed...
February 11, 2009 3:17 PM | Reply | Permalink
Even when I mention nationalizing the banks to people I certainly didn't mean all of them. I figured they'd nationalize key banks to keep the economy afloat.
February 11, 2009 3:13 AM | Reply | Permalink
I'm with oleeb and Alpers... and if they weren't stuffing RIAA lawyers into Justice, billion dollar MPAA lobbied internet sniffing projects into the stimulus package, and backing an over-broad support of the state secrets protection - i might not see a pattern. I fear at some point I'm going to really dislike our president (and you know the nutjobs are going to hang the collapse (for collapse is what we'll get without nationalizing the banks) on him and us for electing him)
February 11, 2009 7:56 AM | Reply | Permalink
I detest you damn chicken littles, you guys make me sick to my stomach.
February 11, 2009 8:33 AM | Reply | Permalink
You mean the Democrats that really want a Republican as President because then they feel good about all their bitching?
February 11, 2009 10:59 AM | Reply | Permalink
Interesting that he is knowledgable of the sweden situation. That tells me that nationalization is on the table. They would only have to nationalize 5 or 10 of the biggest banks anyway. Thanks to deregulation, we allowed the banks to combine and get huge. Really smart move.
Also, the big banks are insolvent, so the shares are technically worthless. I say nationalize, cut out the garbage and clean up the operations and then privatize. Do the same thing that Sweden did. I see no other choice.
February 11, 2009 8:58 AM | Reply | Permalink