A Rare Moment of Agreement with Sen. Graham
Senator Lindsey Graham (R-SC) has proven to be a surprising advocate of limited nationalization of certain banks. In an interview with the Charlotte Observer, he describes an approach that I have a hard time arguing with:
First, I support the administration's proposal (announced last week) to stress-test the banks. Then, if a bank fails the test, there are three options that are logical. One option is to let the bank fail. The second is if the bank is under stress but could recover, then more capitalization from the federal government might make sense. The third group would be those banks that fail the stress test but we just can't allow them to fail (as an institution), and government capitalization doesn't make sense because it would be throwing good money after bad. With them, you take them over, break them up, resell them, and try to get the taxpayers' money back - get in and get out as quickly as possible.
I think this is a pretty pragmatic approach. The only piece I would add is that once banks are recapitalized, some level of graduated capitalization requirements needs to be developed to ensure failures like this can't happen. We said that once before, in the depression. The run on the banks happened because they didn't have the capital to properly secure their investments. That needs to be fixed.
Fixing the banks is a pivotal part of turning this economy around. Without it, too many businesses, small, medium, and large, run the risk of failure because acquiring inventory on credit is at the heart of their ability to survive.
Temporary nationalization may be the only way to turn this part of the recession bus around.
I wonder if it would be legal to limit campaign contributions from these entities during this time. Politics has a nasty habit of influencing some of this decision making at the worst times. (see: Fannie Mae & Freddie Mac).
As a concept, some of me wonders if we would even be in this mess if political campaigns were public financed.
First, I support the administration's proposal (announced last week) to stress-test the banks. Then, if a bank fails the test, there are three options that are logical. One option is to let the bank fail. The second is if the bank is under stress but could recover, then more capitalization from the federal government might make sense. The third group would be those banks that fail the stress test but we just can't allow them to fail (as an institution), and government capitalization doesn't make sense because it would be throwing good money after bad. With them, you take them over, break them up, resell them, and try to get the taxpayers' money back - get in and get out as quickly as possible.
I think this is a pretty pragmatic approach. The only piece I would add is that once banks are recapitalized, some level of graduated capitalization requirements needs to be developed to ensure failures like this can't happen. We said that once before, in the depression. The run on the banks happened because they didn't have the capital to properly secure their investments. That needs to be fixed.
Fixing the banks is a pivotal part of turning this economy around. Without it, too many businesses, small, medium, and large, run the risk of failure because acquiring inventory on credit is at the heart of their ability to survive.
Temporary nationalization may be the only way to turn this part of the recession bus around.
I wonder if it would be legal to limit campaign contributions from these entities during this time. Politics has a nasty habit of influencing some of this decision making at the worst times. (see: Fannie Mae & Freddie Mac).
As a concept, some of me wonders if we would even be in this mess if political campaigns were public financed.