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ERIC BLACK INK

Lindsey Graham is open to nationalizing the banks

By Eric Black | Published Mon, Feb 16 2009 10:11 am

In today's installment of his excellent new MinnPost blog "Political Economy," Steve Perry segues from the issue of liimiting Wall Street executive pay (honestly, how can we expect anyone to give their best effort for a measly million or two a year?) to the idea of nationalizing the banks. Perry notes that even an American Enterprise Institute analyst made a pro-nationalization comment.

I would add, because my slack jaw never quite recovered from this yesterday, that Sen. Lindsey Graham (R-S.C.) said on the Stephanopoulous program Sunday that he wouldn't take nationalization off the table. Graham has developed a good reputation with me for speaking his mind and being less-beholden-than-most to party orthodoxy. But he is a very conservative Republican.

(In expressing his openness nationalizing the banks, Graham made common cause with another member of the Stephanopoulos panel, Maxine Waters, D-Cal., one of the leftiest members of Congress. Here's the excerpt:

GRAHAM: Yes, this idea of nationalizing banks is not comfortable, but I think we have gotten so many toxic assets spread throughout the banking and financial community throughout the world that we're going to have to do something that no one ever envisioned a year ago, no one likes, but, to me, banking and housing are the root cause of this problem. And I'm very much afraid that any program to salvage the bank is going to require the government...

STEPHANOPOULOS: So what would you do now?

GRAHAM: I -- I would not take off the idea of nationalizing the banks.

I don't know enough about economics to have an informed opinion on this. And Graham advocates only leaving the idea on the table. But jeez. Lindsay Graham.

| Mon, Feb 16 2009 10:11 am | 9 Comments

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9 Comments: Hide/Show Comments

(#1) On February 16, 2009, Randy Fordice says:

I would comment but my jaw hitting the ground makes it hard to type. NY Times Business section on Friday discussed the Japanese banking problems in the 90s and said we were repeating their mistakes and argued for nationalization. Wow. Lindsay Graham and the NY Times agree. Who woulda thunk it?

(#2) On February 16, 2009, Erik Hare says:

http://erikhare.wordpress.com/

I'm not against this per se. The last time we had to get out of a Depression we tried just about anything, and that flexibility was very important.

However, if we do nationalize banks (ie, hold equity stakes in them) we need to think at least a little bit about the long term. If we do not want this equity to be held forever, how will we dispose of it and under what conditions? It's not exactly liquid when the government has a large stake in something. The second problem is how do we regulate banks when there is a clear conflict of interest set up by our ownership of them?

These are not unsolvable. For example, a company much like Fannie Mae could be set up as an industry insurance pool that covers financial assets beyond the FDIC's purvey; that corporation could hold the assets with a plan for disposal when certain conditions are met.

But - without a long-term plan, this has perils associated with it. I think it's best to think those through in advance. I applaud Graham's flexibility, but I'd like a little more care before we act.

(#3) On February 16, 2009, Ann Spencer says:

I'm no economist so I'll pass on the merits of this idea. But the politics fascinate me!

A few weeks ago, I e-mailed my college roommate, who teaches economics at an Ivy League university, to get her thoughts on the current situation. She said that the heart of the problem is the insolvency of the banks and that temporary nationalization a la Sweden is the best way to scrub the toxic assets and get a fresh start for the system. She noted that such a notion would be greeted with a firestorm of protest and thus is probably not politically tenable.

Now we have Lindsey "This bill stinks!" "If this is bipartisanship, the country is screwed!" Graham indicating openness to the idea. I truly don't get it.

If, as some believe, the "stress test" portion of the Obama administration's financial rescue plan is simply a preliminary step to temporary nationalization, then Graham's statement seems to give the President some political cover. Why would Graham want to do that? His motives completely mystify me.

(#4) On February 16, 2009, Erik Hare says:

http://erikhare.wordpress.com/

"Why would Graham want to do that? His motives completely mystify me. "

Because we are in far more trouble than most people realize - quite a lot more than the press is willing to report so far. This is a Depression or will be one without quick action.

The "recovery" bill just passed is intended to do nothing more than stave off Depression, as Moody's has reported. Geithner's lack of a plan for the $350B in TARP is related to their desire to roll out a bigger plan with far more money - because they need it.

The press has done a terrible job of reporting it so far, but the problem is much worse than is generally understood. We may yet avoid a Depression - but it will certainly be close if we do.

You'll see a lot more ideologues like Graham getting a pragmatic sense of fear in their eyes as time goes on.

(#5) On February 16, 2009, Paul Brandon says:

Paul Krugman has argued that temporary nationalization a la Sweden is the only way to effectively liquidate toxic assets without a giveaway to bank shareholders.
The key term is 'temporary'; this I suspect would be a key issue to conservatives like Graham who are most afraid of a permanent shift to public ownership.
As I recall/understand Krugman's suggestions, this might involve massive public purchases of controlling interests in financial institutions, with the institutions required to purchase it back (pay back the Treasury) over three years.
Something like this is already involved in the TARP bank bailouts, and was also done during the Depression of the '30's, with most of it paid back.

(#6) On February 16, 2009, Ann Spencer says:

Erik H., maybe I'm too cynical, but Graham's about-face still baffles me. Has he had a sudden epiphany? It just doesn't fit with his recent rhetoric on the Senate floor and news shows, let alone all the McCain campaign's silly talk about "socialism" a few months ago.

Yes, things are dire, but they've been dire for a while and still the stimulus debate was almost entirely partisan. Graham was a vigorous participant in the partisan speechifying. What's changed?

(#7) On February 16, 2009, dan buechler says:

Annt This probaly won't help you but Franken has said many times that Graham is likable in person and someone who he could work alongside. Unfortunately we can't have him as senator cuz coleman can't get on with his life and wants to sabotage the rest of his political life and our state as his strings are being pulled. And I am not a big partisan believe it or not. Also remember Graham is from South Carolina.

(#8) On February 16, 2009, Author Eric Black says:

Having watched the whole panel, and being willing to consider that both on the Senate floor during the stimulus debate and on Stephanopoulos Graham was saying what he actually believes, my guess to Ann's question is that Graham thinks rescuing the banks is a bigger problem and a more urgent priority than stimulating the economy, that the price of the stimulus was too high, but that the danger of a collapse of the banks is so great that ideological blinders need to be removed and all options considered. What think?

(#9) On February 16, 2009, Ann Spencer says:

Eric: Thanks for addressing my question. Your theory makes sense to me. But I still have some trouble squaring his sharply partisan tone during the stimulus debate with his image as a moderate and his subsequent openness on the nationalization issue. Maybe now that the stimulus package is a done deal, he can abandon the rhetoric and use more temperate language. I hope so, anyway! We need all the thoughtful voices we can get.

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Eric Black is a former reporter for the Star Tribune and Twin Cities blogger. He writes about politics and government of Minnesota and the United States, the historical background of topics and other issues. Click here to view Eric's previous postings at former blog, Eric Black Ink. He can be reached at eblack [at] minnpost [dot] com.

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Lindsey Graham is open to nationalizing the banks

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