3/11/2009

Nationalization of America's Banks

In Alan Blinder's article in the New York Times entitled, "Nationalize? Hey, Not So Fast", he argues that some of America’s banks are in pretty bad condition, but that nationalizing these banks might not be a good idea. He also acknowledges that some of these banks are "too big to fail". There may be many possible solutions to this problem, but nationalization should not be one of them. Many who are in favor of nationalization site Sweden as benchmark for the United States. It is true that Sweden was able to successfully nationalize its banks, but it does not guarantee that it will work in America. Sweden's government only had to deal with an extremely small fraction of the banks that the U.S. government would have to regulate, which is more than 8,300. It would also be difficult for the government to nationalize only a small number of banks and allow the rest to be handled in the private sector. Banks that are not nationalized would face a disadvantage in competing for funds with the government-backed banks, forcing these banks to pay higher interest rates to attract customers and their subsequent deposits, resulting in lower profits. Another problem that Sweden didn't have to face was the size and complexity of banks. Many banks in the U.S. hold billions of dollars in assets, causing more complications in managing these assets. If the government were to take control of the financial sector, banks would mirror the efficiency of the U.S. Postal Service, which anyone can tell you is a complete fiasco!! Finally, the confidence of the American people would plummet to all-time lows if banks were nationalized. It isn't American tradition to seek governmental help unless in dire straits, and nationalization would indicate that the financial sector is failing, resulting in less consumer confidence. Less consumer confidence would only deepen the recession and cause the stock market to continue its downward spiral. The government cannot be allowed to tinker with the free market. Every time it implements a new policy, such as the nationalization of banks, past history has shown that, although good intended, these policies make society worse off.

4 comments:

Sophia said...

I agree with what Trevor said concerning the Nationalization of Banks. The financial industry is huge within the United States, and I would hate for our large government to become even larger. Governments are inefficient, and a nationalized bank would be the same. I also agree with the idea of consumer confidence being depleted even further. I can see that times are rough and we are in need of some change, but why are we considering such a drastic move that would almost surely cause an even greater collapse in the financial sector.
What is happening right now is just part of a cycle. Financial companies were very successful for a time, and too many people jumped on the band wagon with the financials. I think this recession is just a way to clean out the system and to get rid of all the financial companies who are not efficient and who are not functioning well enough to stay in business.

anthony said...

I agree with the post on some issues, but disagree on others. First off, as far as nationalizing some banks and leaving others private, why would the government have to give themselves an advantage in competing for funds? If for instance, Bank of America and Citigroup were nationalized, I think the government would know the dangers of out-competing all other banks, therefore they wouldn't do it. As far as consumer confidence goes, anyone with any intelligence already knows the financial companies are in complete chaos. It's hard to imagine a further breakdown in consumer confidence at this point. I remember when word first hit that Bank of America might be nationalized. Bank of America's stock price plummeted around 25%, but the indexes for the broad market were unscathed.

Victoria said...

I think this is not good idea that nationalization of America's banks.Nationalization of america's bank would make more power for government. In smaller country, nationalization bank would be good idea.

Dr. Tufte said...

I'm not against Trevor's point, but it is filled with a lot of tropes (another word you should look up) rather than solid arguments. Nothing personal, but this is a good example to vent upon.

1) "Sweden was able to successfully nationalize its banks, but it does not guarantee that it will work in America." This is true of just about everything, so it really isn't an argument against nationalization.

2)"Sweden's government only had to deal with an extremely small fraction of the banks that the U.S. government would have to regulate". But we already deal with this large number, so we must have stuff in place to handle it.

3) "It would also be difficult for the government to nationalize only a small number of banks and allow the rest to be handled in the private sector." This is true, but it isn't a fault of nationalization, it's a fault of the system we already had.


4) "Another problem that Sweden didn't have to face was the size and complexity of banks." Because we have more banks in the U.S., they tend to be smaller, so this should be less of a problem.

5)"It isn't American tradition to seek governmental help unless in dire straits..." This is what we like to tell ourselves, but the size of our government relative to our economy would be smaller if it were true.

6) "The government cannot be allowed to tinker with the free market." Hmmm. We're talking about one of the most unfree markets in the country.

OK. I'm done now.

My point is that part of what you are learning in college is how to figure out when others' arguments aren't too sharp. Trevor's post is about par for the course, and you could here something like this on the TV just about any night.