What to do with nationalised banks?

seems to me there’s not much wrong with a bank called the “Bank of America” being owned by America.

I’m thinking these days about the view from South America or Russia. Then, they told us about the rules of the IMF/World Bank, and how this economic pain was for our own good. Now they are nationalizing. Ergo, we’ve been had.

I suppose you can’t apple/apple compare, etc, but still, I will be interesting to see how the the ’90 economics will be written down in these countries.

“What happens to a small shareholder when the bank is nationalised?”

Plenty of info on what happened to small shareholders of Northern Rock is available online. It seems the best move is to liquidate, sharpish.

Plenty of info on what happened to small shareholders of Northern Rock is available online. It seems the best move is to liquidate, sharpish.

There is some upside (at a sufficiently low share price) to the inevitable litigation. The Northern Rock thing is going to take years to sort out.

Pretty hard to disagree with Steve LaBonne on this one.

On the other hand, the Pete Seeger thread above inspires me to dream: “Then we’ll own those banks of marble, with a guard at every door, and we’ll share those vaults of silver that we all have sweated for.”

Why nationalize? Why not use the money to simply create a national bank ex nihilo? James Galbraith has suggested something on the order of the New Deal’s Reconstruction Finance Corporation , and it seems to me this would, at a stroke, solve several problems. It is through such a vehicle that we can managed the necessary industrial bailouts, say of the auto companies. But more, this would give the Government a command and control mechanism to allocate capital to necessary enterprises that, at the moment, can’t compete for investment in the chase after high yield environment we exist in. We know that the private sphere sucks when it comes to allocating capital, spending much more on reseaching the cure for male pattern baldness, say, then for malaria. We know that the underinvestment in the infrastructure is imbricated with the underinvestment in the green technologies that are necessary to keep the world from undergoing a truly massive environmental disaster. So, a national bank is an excellent way for the State to force the private sphere to operate for the common good. To do this, one must go athwart the conventional wisdom of the neo-classical gang, but in fifty years, when it succeeds, they can write some silly book about how the “obama’ depression was aggravated by the “interference’ of the government. Right now, however, we need massive interference. Take, for instance, the bailout of the American car industry. At the moment, in Europe, cars are being sold that get twice the mileage of American cars – by American companies! Ford has produced a mass market 60 mile per gallon car, for instance. The secret is that those cars burn diesel, which is now refined in such a way that it is less polluting than gasoline. Why isn’t this happening in the States? Lack of refineries that could do the same thing. A national bank could either finance the building of those refineries or the financing of a wholly new private public entity to build them, if need be.
If the 700 billion had been put into such a bank in the first place, we’d be in a much beter positions at the moment.

This is American, Quiggin. The “reasonable” thing to do is obviously out of the question. In real-world, non-utopian terms, which will be the least damaging unreasonable approach?

But more, this would give the Government a command and control mechanism to allocate capital to necessary enterprises that, at the moment, can’t compete for investment in the chase after high yield environment we exist in.

We already have a system for this. It’s called taxes. The government passes a law and raises taxes, and then hires people to carry out whatever necessary enterprise it wants to do. The government can hire people directly as public servants, or it can write contracts with private companies to deliver the goods, which is better I think depends on how standard the contract is – I think the government is best off just buying petrol for police cars, but hiring police as public servants makes more sense than writing contracts due to the incentives problems. This is, for example, how governments fund things like school buildings, hospital buildings, sewage systems, and military weapons.

We know that the private sphere sucks when it comes to allocating capital, spending much more on reseaching the cure for male pattern baldness, say, then for malaria.
The relevant question is does it suck more than the public sphere? Governments around the world spend far more on military weapons than on a cure for malaria. The New Zealand government’s experiments with Think Big were not pretty – lots of massive energy-intensive projects that were made massively uneconomic by the drop in oil prices, and a big hydro dam built in a nasty place from a geological viewpoint. The Japanese experience of massive construction projects does not appear to be remarkably good. The British government has just decided to build a third runway at Heathrow, there are a number of people who are convinced that this is a really bad idea. And what do the Italians think about the Italian government’s decision to reintroduce nuclear?

So, a national bank is an excellent way for the State to force the private sphere to operate for the common good.

And a national bank is an excellent way for the State to force the private sphere to operate for the current Government’s good (eg big unnecessary building projects in marginal electorates). And a national bank is also an excellent way for one powerful Minister to force the private sphere to operate on the basis of whatever weird ideas he or she gets.

Tracy, who doubts that command and control systems decay? The question of which is best ignores the fact that there is a business cycle, and that different approaches are fit for different moments in the cycle. The big “unnecessary” state projects in the U.S. happened to create the American west – without the government in effect taking over the water of the land West of the Rockies, there would certainly be no Los Angeles, Arizona would have 200 thousand citizens, Washington and Oregon would still be mostly trees. There is an environmental perspective in which, perhaps, that would be to the good – but it certainly isn’t a capitalist perspective.

The state, of course, has many of the same structural faults as the private sector – namely, its vulnerability to oligarchic capture. We are watching a spectacular oligarcho-fest unfold before our eyes, as the Government which is supposedly worried about whether it can pay the medicare bills of the sick in 2040 slings trillions of dollars at the banks in a matter of six months. And you are correct that the best way to correct this situation is to destroy, to the extent that is possible, the entrenchment of the oligarchy through taxes. A marginal tax rate on incomes above of million per year of at least 70 percent would be an awful big help – and more, an inventive way of breaking up the wealth of the wealthiest, which is not income wealth, would also be a help. The more entrenched that wealth is, the more the private sector tends towards dysfunction, resulting in the hunt for high yield that gives us ‘cures’ for risky securitized commercial real estate mortgages instead of cures for malaria. Of course, the golden era of medicine, the fifties and the sixties, the anti-biotic revolution, was the direct result of state intervention. Penicillin production was funded during WWII by the state, the great pain relievers, like Cortisone, came out of military funding, the surgical procedures that resulted, eventually, in transplants again came out of state funding for military purposes, it was public health measures by the state that first brought down tb, etc., etc. Find a major disease, find the cure, and you will find research money traced back through publicly funded programs at universities, and national health care agencies, that were at the back of it. But this system also displays exactly what can go wrong with the state – the Bush pill bill, for instance, massively rewards inefficiency in Big Pharma and maintains the crazy IP system that makes health care costs go up when technology gets better – in opposition to, say, software. Healthcare that should be cheaper and cheaper is more and more expensive because of the entanglement of state and private interests.

To return to the argument, however – the conservative use of the term “crowding out” interests me, because what has been crowded out, for the past thirty years, is public investment. It has been crowded out in the name of the more “efficient” private sphere, but the standard of efficiency seems to be skewed – it isn’t more efficient at meeting mass needs for better education, cheaper healthcare, a cleaner environment. And when taking up the challenge of expanding housing, the private sector showed consclusively that it couldn’t do it. It couldn’t do it, that is, efficiently – because at the same time that the private sector was expanding credit, it was battering down the bargaining power of labor, and thus lowering the rate of increase of household income, or freezing it altogether. The private sector can’t insure retirement – the Chilean experiment, right now, the one that Bush’s privatization program was based on, is in freefall. And all the countries that followed Chile’s lead are watching as a generation’s pensions disappear. The business cycle will turn, and the private sector will eventually digest the programs laid down by the state again – but in this trough, it is time for the state to expand massively.

”There is an environmental perspective in which, perhaps, that would be to the good – but it certainly isn’t a capitalist perspective.”

As the old saying goes, “man does not live on melamine alone.” If it’s just a capitalist story we seek why not just sell to the house of Saud or Dubai or China, after all we have squeezed most of the stuffing out? Seems you’re measuring success in a similar manner to how The Surge is being portrayed, or in light of todays events like how the transfer of governmental power[s] did not involve a coup.

”I don’t see the private sector pitching in with a collective sigh of, well, it might be totally unprofitable, but we are going to scrap every environmental negative externality and prepare for the sixty year drought cycle that the West is apparently in.”

Are you looking for that Roger? There seems to always be money in the public well. My point was in your separating, “environmental perspective” and “capitalist perspective.’’ That P~P dis-entanglement is readily apparent ‘out west’ and amounts to US cleaning up the mess be it a more singular externality like the Berkley Pit or a broader one, say, lack of salmon in the Sacramento river basin. I don’t believe that’s what you’re really trying to argue but it was none to clear to me in thta passing of phrase.

The “state” is but a reflection of [some portion of] the inhabitants. The “need” of the auto industry is an orchestrated one, much like the “surge,” and is a similar need to say the CAP. It may “work,” but is it a solution? A few simple regulations is what they really need. They are not there as a public service, however the roads we all pay for are, and do indeed amount to a subsidy for them – and yes they do need to be smooth lest my Hummer handles poorly.

Of course Maoism isn’t the only answer is it nor were the solutions graced upon us by Congress via the corporate Helmsmen at the time, or even now. Juging by the pace of the trillions that have gone to support finance industry our economy, spontaenous ‘state” policies do seem possible. Are we now Mao, and are you “upper” “management”?

There are very few state(nationalized) owned banks that are profitable. Whats the point?

We live in mad times, or we would not even be talking about such things.

Considering it is all heading south anyway, isn’t it a pity that we missed the opportunity to build a sound currency? A few posters back someone said we might have at one point used all the billions we are pouring into private banks to make a government bank and let the private banks fail. Maybe we could have (or could still) created a sound dollar and done away with the Federal Reserve.

Eric