Daily Dose: Nationalize the Too Big to Fail Banks?

The Financial Times has a good article that illustrates the amazing shift in thinking among our leaders.  Not only has Lindsay Graham come out in favor of a nationalization of the most insolvent banks, so has Alan Greenspan.

In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laissez-faire capitalism, said nationalisation could be the least bad option left for policymakers.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

The WSJ’s Real Time Economics blog chimes in with this:

“All of the sophisticated mathematics and computer wizardry essentially rested on one central premise: that enlightened self interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms’ capital and risk positions,” the Fed chairman said. The premise failed in the summer of 2007, he said, leaving him “deeply dismayed.”

Self-regulation is still a first-line of defense, Mr. Greenspan said. But after the financial collapse of 2007 and 2008, “I see no alternative to a set of heightened federal regulatory rules of behavior for banks and other financial institutions.” He said hoped hoped it would come in the form of tougher capital requirements for banks.

His comments echoed testimony of the former Fed chairman made last October, when he acknowledged his state of “shocked disbelief” at the market turmoil.

Of course, Greenspan is one of the culprits behind the mess we’re in.  He was the master of deregulation during his tenure.  He also repeatedly denied that there was a housing bubble or that any action should be taken to cool the housing market.  The “Greenspan Put” was always counted on by the markets to bail us out whenever moral hazzard became too much of a concern.  He was a careless cheerleader for too long, rather than a careful steward of our economy.  He is doing whatever he can to burnish is reputation now, but is truly is one of the bad guys.


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