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Mar 8 / Jonathan

An Amazingly Disingenuous Piece by Alan Blinder on Bank Nationalization

Yves Smith, blogging at Naked Capitalism, is one of the clearest online voices on economics. I’ll keep linking, but you really should add her to your econofeeds.

An Amazingly Disingenuous Piece by Alan Blinder on Bank Nationalization

Yves SmithBefore I start shredding “Nationalize? Hey, Not So Fast,” by Alan Blinder in the New York Times, let us first go back to the basic problem,, nomenclature. Blinder does not specifically do so in this article, but opponents to nationalization often raise the image of enterprises being expropriated by the state, in other words, healthy (or at least viable) businesses being stolen.

We have the reverse here. Instead a transfer of wealth from the private sector to the state, we have the state (as in the taxpayer) propping up businesses and keeping management demonstrated to be incompetent, perhaps corrupt (let us not forget that overcompensation in phony good times is tantamount to looting, and liberal accounting appears to be awfully common) in place.

The normal remedy for failed businesses is to let them fail. But we don’t do that with banks. The big fear is depositor runs, and if that were to occur on any scale, it would indeed bring the entire system down.

Quite a few readers have said something along the lines of: “I’m opposed to nationalization, the banks should be put into receivership.” Hate to tell you, they are the same thing. …

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  1. Loren / Mar 8 2009

    TPM notes a ranking member of the banking committee making the same point Smith refutes coming from readers: “I don’t want to nationalize them, I think we need to close them.” — Sen. Richard Shelby (R-AL)
    http://www.talkingpointsmemo.com/archives/2009/03/oy_15.php
    The seniority system is supposed to promote experienced members into responsible positions, but it seems that mere competence is not a requirement.

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