In the current governmental intervention in failing banks, the term "nationalization" has become a shibboleth, with some using it to clobber Obama's plans and others, even Repubicans like Sen. Lindsey Graham and Alan Greenspan, advocating it. Meanwhile, the Obama administration has been trying to avoid the term, understandably, in order to avoid the distractions that opponents' misrepresentations would bring.
Today's AJC has an unsigned article that clarifies the muddled waters. It cites three things to consider that make the difference in the nature of governmental "taking over" the banks: ownership, control, and intent.
1. Ownership: The government will buy shares in failing banks. In some cases it will become the largest shareholder but most often less than 50%. If it owns 80% then accounting rules change and the bank must be included on the government's balance sheet. It wants to avoid this kind of "ownership," so it took only 79.9% stake in AIG, Fannie Mae and Freddie Mac.
2. Control: The government says it will not run the banks in the sense of day to day operations. And it will sell the banks it does take over as soon as the bad assets are dealt with. For example, it seized the failed IndyMac, held it for six months while restructuring it, and then sold an improved institution to private investors.
3. Intent: This is the key. The government does not want to run banks permanently. Of the 14 it has seized this year, it has tried to sell the healthy part of the banks right away. It's more like car repair: "pull the bank into the shop, replace the broken parts, and get it back on the street." Rather than retaining ownership, you put it back in the private sector as soon as it is ready to sell.
All these factors should be reassuring to those who think that "nationalization" is the same as what fascist dictators do when they take complete control of their countries' financial institutions, along with industry, resources, and communications.
I found this helpful -- and good talking points the next time someone tries to play the "socialism" card.
Ralph
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As I understand it, what's being talked about is not something new: it's what the government has already been doing for at least 6 months, going back into the Bush administration.
ReplyDeleteBut, as it may become more widespread, and the scary word has surfaced, it has aroused alarms.
Perhaps the word needs a couple of adjectives: partial and temporary.
Or, as someone has suggested, call it "pre-privatization."