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Nationalization: Cutting Losses and Creating Solutions

Nationalization: Cutting Losses and Creating Solutions

A debate rages on different plains about rescue of the banking industry and real estate market.  That is a clean way of putting it.  Not the debate–the debate is pretty clean.  But the notion that it is just the banks and homeowners who are at risk is pretty sanitary. 

Without banks there is no substantial financing of business activity.  We could reinvent financing, especially since the Internet was not around when the current banking system was begun, but it would take years to reach anything like national capacity.  In the meantime, now, falling business activity continues a downward spiral of unemployment, business failures, investment losses, and postponed planning and recovery.

With no finance and no confidence, there can be no real estate market.  There is only deterioration in values and losses in investment.  Forward business activity and healthy market forces require confidence in the future. 

Hence, the nationalization debate.

If the government takes over weak segments of the banking system, it can, at a cost, make them stable institutions of the recovery economy.  They can loan money without fear of failing for lack of sufficient loan reserves.  Similarly, the government could buy up and hold real property at discounted prices throughout the United States.  This would eliminate the concern that numerous properties sit in default with no payments made on the mortgages and with no interested buyers.  The government is used to owning land in America–it owns much of what is not developed or used.  Add to that a fraction of the housing stock, to be resold later, and you have a more stable marketplace for the remaining property.  (You would have to create a formula such as automatic purchase of all homes in foreclosure at a set percentage discount for a six month period).

Why not nationalize one or both fractions of the marketplace?  Certainly this is not an efficient method of setting prices and running financial and real estate markets.  It would be a really bad idea if you had a functioning marketplace because like the communist economies, it would lead to poor allocation of resources, lack of private incentive and declining productivity.  But, should we be holding out for efficiency, when the very functioning of the system is so broken down?

It must be particularly hard for the Obama administration to look towards nationalization as an option.  The first African American president is hardly a financial liberal or political radical.  He taught at the University of Chicago, a free-market powerhouse.  He was not, so far as I know, part of the “Chicago School” of conservative economics, but neither was he ever noted as a liberal economic standout.  His centrist, free market, choices for Treasury department and economic advisors confirm this.  

What’s the solution?  How about giving a group of responsible Republicans the challenge of crafting and selling the temporary-nationalization plan?  Cherry-pick them in advance so they are willing, at least, to do what is needed.  Despite all our anti-politician rhetoric, there are many among them who are in an of themselves, profiles in courage. 

Rather than indulging in battle over whose party it is, and what it stands for, why not take on the problems of the day and solve some?  

We are clearly at a point of great uncertainty.  The recovery may come as the bottom of the market is reached according to market forces or it may not.  The stimulus spending and tax cuts may aid the recovery or they may not.  But the hole in the plan needs to be repaired, one way or another.

There is a significant, whether that’s one percent or more, risk of more devastation to business activity and investment value.  At some point, rather than aiming for a refined solution, you need to aim to protect yourself from the risk of catastrophe.  Protection from disaster is different than planning for optimal results.  We should, at least someone should, be advancing ideas on that level.

When the countries of the former Soviet Union endured its collapse and economic crisis in the 1990s, industrial production, standards of living, and life expectancy declined deeply.  Painful as it was, within a few years, conditions improved.  We might learn from these experiences as well as from other nations that have had to nationalize collapsing industries, and our own savings and loan crisis in the 1980s.  In each of these cases privatization was eventually successful, so we should not worry about a slippery slope towards socialism or the communist domino effect.  The real risk in those directions comes only if the United States is unable to pull itself up by its bootstraps and demonstrate a viable system.

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16 comments

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5:27AM PDT on Mar 10, 2009

weight of the banking tax havens, is useful of the rate of unemployment, in crisis currently, to carry out a permanent and durable pressure on the employees overexploited by overtime and them working conditions , and those which would complain, sometimes syndicalized rebels promised with the abusive dismissal, therefore with unemployment. General situation of the economy, having introduced and having prepared the ground with the current crisis financial and world politics. Tax havens added again to the application without follow-up of the plan of accompaniment envisaged socialist of the most been worth distribution of and of the richnesses, (wealth tax reduced to the tax on the small ones and average fortunes) without what the saving in State would have been healthy.
The nationalizations of the means of productions and the banks, partially of less and according to a certain percentage, would be the solution.

5:25AM PDT on Mar 10, 2009

Denied freedoms, ridiculed by the current mode related to the world capitalism, which makes that the establishment with the fact 35 H was not followed plan induced by Karl Marx, addition with a partnership shareholder of the employees with the company differently known as, the end of the retention of the appreciation having automatically to remunerate the workers of large and medium-sized undertakings, retention financial feeding the gilded parachutes and tax havens of employers and the personnel to his pay. Or money intended to finance the overcost of new production machine tools of a production related on the mode, the gadgets, futile which brings these machines with breakage quickly, unceasingly replaced by news, morals of the gaspi which creates job for employment and of the production for the production, only revival proposes by employers, thus living for itself. As regards the small companies, the crisis induced by this money retention flashes back on them, not being able to answer the recruiting of employment allowing that the employees do not work for all nor for ten in overtime which were to return to being covered by the recruiting of so much promised additional employment, and which this money of the appreciation retained by employers could have financed, knowing that this permanant state of economic and financial crisis caused by these tax havens added again to the weight of the banking tax havens, is useful of the rate of unemployment, in crisis currently, t

11:13PM PDT on Mar 9, 2009

"Republicans for Nationalization"? What? More political party CYA rhetoric.

Banking should never be a for-profit operation. It must serve simply as a public service to allow an economic system to operate efficiently. Greed and it's inherent intoxication lead to uncontrolled stupidity that harms the entire economic system. Nationalization is only a coverup for a banking industry that requires the drastic reductions necessary to be what it must be: a public service ONLY. And certainly NOT a privately owned enterprise at any level. The senseless customer fee structures of banks and credit unions is only one of the most obvious examples of their insidious funds acquisition programs, compliments of our state and federal legislators. Just as our air traffic controllers keep us safe, banks must be limited to safely expedite customer initiated funds flow only.

2:11PM PDT on Mar 9, 2009

Nationalization is a remedy to alleviate Capitalist Greed. It should go hand in hand with anti-inflationary price controls and caps on Individual and Corporate wealth. (Seven million for Individuals and seven billion for corporations.)

Wall Street and the Federal Reserve should be abolished. They are diseases in Our Society.

But none of this can be done right if We The People do not rise and take responsibility for Our Nation. Become the Watchful Eye over Our Business Enivironments and Representatives. Become the Third Hose of Congress through an American People's Plebiscite. If the People fail to do this, tyranny and revoltion will have their day. America will be weakened and ultimately fall prey to the New World Order.

11:58AM PDT on Mar 9, 2009

Nationalizing the banking sector would do nothing but add to the problem. Some congressmen would come up with a maximum profit rate and that's how decisions would be made on some loans, others would say that business serves no purpose we can see so no money. Our government is dysfunctional now, give it total control of the banking sector and we'd be going back to families for loans.

You'd entrust the people who haven't managed to control/balance our budget but maybe 2% of the time in the last 80 years?

10:01AM PDT on Mar 9, 2009

By the way, if the banking system were nationalized, and the Treasury resumed issuing the money for this country, there would be no credit crisis as there would be no bankers in the middle saying "we don't feel like lending money until we get our zillions back from the bad investments we made". There could be oversight precisely because the banks would be federally owned and therefore public institiutions. We don't have that now because private entities can say "Well, gee, it's none of your business, we're going to do what WE want anyway." No oversight, no regulation.

If there was available credit, this would be much less of an economic disaster and people could get loans to buy houses or run their businesses.

9:52AM PDT on Mar 9, 2009

So if I understand correctly, Tony wants to nationalize to fix things and then give the fixed corporations/institutions back to those folks that wrecked them in the first place? How crazy is that?

If I had a goose that laid golden eggs (and our banking system which the private bankers now own is just that) I'd use the eggs to pay the bills and creditors, not hand over the goose.

Yes, one of the functions of the gov't should be to protect us from each other, but who is "each other"? Does "each other" not extend to heads of banks and other corporations who would and do regularly eat us for breakfast? Don't bankers (who are private individuals) qualify as persons the rest of us need protection from?

Another MUST READ resource is the book "The Web of Debt" by Ellen Brown J.D. See www.webofdebt.com

9:11AM PDT on Mar 9, 2009

All of you who are commenting seem to forget those citizens who are losing their homes. Also, none of you have mentioned the 300,000 empty homes in Florida that no one can buy and no one is paying for either. THAT IS THE PROBLEM.

I am not sure the government owning those homes is the answer either. I personally want to keep my home. I want the mortgage holders to offer me a better and lower payment. Also, taxes and insurance have all skyrocketed. The states are not doing their jobs in protecting their citizens. Here in Florida they are cooking up schemes to help developers build more houses that will remain empty because the developers are the powerhouses in this whole scenario. NO ONE seems to really look at the big picture and understand that the citizens and the land are being damaged as we argue about CEOs and their fat bellies. They all should lose their jobs: the CEOs, the land developers. and banking middle management.

I like the idea of letting the successful banks come out of this alive, but we must also look at credit, credit ratings, car loans, interest rates on all credit and a whole tankload of other arsenal that this so called "free market" has dumped on the innocent. Free market? Try corrupt market? Outsourcing and child labor need to end. Are you going to say that to the multinationals? Get multinationals out of Africa, India, China and Latin American. STOP the madness and corruption. STOP the greed and keep Americans in their homes.

8:41AM PDT on Mar 9, 2009

Dear readers,

I find it quite interesting that when the markets are collapsing and the values are declining, the big boys with their million dollars salaries, chauffeurs, limo, private jet, bonus plans and I certainly forget a few... are whining and crying foul play.
TO my knowledge, isn't it PAY FOR PERFORMANCE....If these grand tycoons of the industry cannot perform:
1. They should not be part of any management of any company receiving public funds, because if they could not manage well and foresee the BIG PICTURE (as they all call it), then we need to CHANGE THEM.
2. ANy new management should drive his onw car to work or take Public Transit...
3. There should not be any bonus plan allowed up until all the public funds are reimbursed

Let's not forget, that these Big Boys did not flicker or wink when they decided to cut down staff or shut down a plan..they basically just said: "You did not perform"or "the markets are down"or whatever else they pulled oput of their dictionary of "valid reason to terminate someone".

I belive that if there is going to be any input of publice funds, the BIGBOYS and their LAQUAIS must be booted out before the CASH gets there and that they begin to spend it on $ 100 lunches, fuel for the private jets or paid chauffeur.

The Big Boys have to understand they FAILED, DID NOT PERFFORMED and therefore are out of luck... oust them all.

and I am a true FREE MARKET believer.. if there is a market it will reorganize from the ashes ...

8:04AM PDT on Mar 9, 2009

The 'government' is only as good as the men and women running it.

We have all seen the result of 'Reaganonomics...Do we really want more of bad politics and politicians running the banking industry? I think not. Not every administration in the future will be as trustworthy as the one we have in place at the moment. I refer to the past eight years. Defiance and deception on every inch of the road to 'here' the present leadership.
I think we need some very strong and incorruptible rules in place to keep 'for profit' businesses from getting too big or too powerful.
The rules put in place so that they can not be eroded away, as we have seen in the past thirty years. The erosion of carefully crafted laws put in place to close 'loop-holes' to crooked dealings in the big business industries.

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