Libertarians for Bank Receivership
From a libertarian perspective the government's job is to do little more than enforce contracts and insure that people keep their promises. If I pay you ten dollars for a pallet of eggs and you don't give me the eggs, or you give me old rotten eggs, it's the government's job to provide law enforcement and courts where I can get back either my ten bucks or the eggs I'm entitled to.
It's simple if you're talking about eggs, but it's a little more complicated when you're talking about a troubled business like a failing bar. If a bar goes bankrupt there are all sorts of contracts - employees and suppliers who haven't been paid, and bar tabs that haven't been settled, etc. You could just close the bar and say "screw you guys" but to get everyone the money they're owed the best thing to do is keep the bar running, sell the bar to a new owner, and use the proceeds to pay the bar's creditors. This is receivership - the government takes the business away from the person who's breaking contracts or laws and figures out how to cover its assets and liabilities. This American Life had a feature recently about an entire town that went into receivership when the FLDS started using force against its members, and breaking contracts, and other libertarian-unfriendly things that a judge will not award you any ice cream for.
I bring this up because there's a lot of talk about "bank takeovers" or "nationalization", words which sounds like what happened when Hugo Chavez nationalized Venezuela's oil. That's not what's going to happen with troubled or insolvent banks. They will be in receivership - the government will preserve the banks and sort out their assets and liabilities before turning them over to new private owners.
Why is this necessary? The banks are already "zombie banks". The only reason why they've been able to contiune to operate - cashing checks and giving out your money - is because the Federal government has guaranteed their ability to do so. How bad is it? Bank of America has a market cap of $19 billion, but they've received $45 billion in public funds - a big hole. Why is this good? The receivership ends bailouts to shareholders, preserves the value of the bank so that the taxpayers can get their bailout money back, replaces the incompetent fools who got us into this mess with new private owners. What's specifically going to happen? The government will stress test banks to see which ones are still solvent, and take the insolvent ones away from the idiots who ran their business into the ground. They'll find out how much their toxic assets are actually worth, write down the losses, and sell off the still-valuable parts of the bank to the private companies. Paul Krugman joked that "pre-privatization" would be an appropriate euphemism because nobody wants the government to run the banks longer than it takes to clear this fiasco up.
This happens all the time. Banks have problems, and not a week goes by without the FDIC taking several smaller banks into receivership. 14 smaller banks have been put into receivership this year already. It's not "good news" in the traditional sense, but turning toxic insolvent zombie institutions into healthy financial institutions seems like a good thing to do and there's fairly broad consensus from Roubini to Greenspan to the Wharton School of Business that it's a good idea. I'm titling this "Libertarians for bank receivership" because although nobody wants the government to run our companies, and this is the rare occasion where government intervention seems to make sense even from a libertarian perspective.
Further reading:
- ABC today had a good round table discussion about the subject.
- baseline scenario explains the five different things that "nationalization" sometimes means.
- Republicans want to nationalize as long as they don't call it nationalization.
It's simple if you're talking about eggs, but it's a little more complicated when you're talking about a troubled business like a failing bar. If a bar goes bankrupt there are all sorts of contracts - employees and suppliers who haven't been paid, and bar tabs that haven't been settled, etc. You could just close the bar and say "screw you guys" but to get everyone the money they're owed the best thing to do is keep the bar running, sell the bar to a new owner, and use the proceeds to pay the bar's creditors. This is receivership - the government takes the business away from the person who's breaking contracts or laws and figures out how to cover its assets and liabilities. This American Life had a feature recently about an entire town that went into receivership when the FLDS started using force against its members, and breaking contracts, and other libertarian-unfriendly things that a judge will not award you any ice cream for.
I bring this up because there's a lot of talk about "bank takeovers" or "nationalization", words which sounds like what happened when Hugo Chavez nationalized Venezuela's oil. That's not what's going to happen with troubled or insolvent banks. They will be in receivership - the government will preserve the banks and sort out their assets and liabilities before turning them over to new private owners.
Why is this necessary? The banks are already "zombie banks". The only reason why they've been able to contiune to operate - cashing checks and giving out your money - is because the Federal government has guaranteed their ability to do so. How bad is it? Bank of America has a market cap of $19 billion, but they've received $45 billion in public funds - a big hole. Why is this good? The receivership ends bailouts to shareholders, preserves the value of the bank so that the taxpayers can get their bailout money back, replaces the incompetent fools who got us into this mess with new private owners. What's specifically going to happen? The government will stress test banks to see which ones are still solvent, and take the insolvent ones away from the idiots who ran their business into the ground. They'll find out how much their toxic assets are actually worth, write down the losses, and sell off the still-valuable parts of the bank to the private companies. Paul Krugman joked that "pre-privatization" would be an appropriate euphemism because nobody wants the government to run the banks longer than it takes to clear this fiasco up.
This happens all the time. Banks have problems, and not a week goes by without the FDIC taking several smaller banks into receivership. 14 smaller banks have been put into receivership this year already. It's not "good news" in the traditional sense, but turning toxic insolvent zombie institutions into healthy financial institutions seems like a good thing to do and there's fairly broad consensus from Roubini to Greenspan to the Wharton School of Business that it's a good idea. I'm titling this "Libertarians for bank receivership" because although nobody wants the government to run our companies, and this is the rare occasion where government intervention seems to make sense even from a libertarian perspective.
Further reading:
- ABC today had a good round table discussion about the subject.
- baseline scenario explains the five different things that "nationalization" sometimes means.
- Republicans want to nationalize as long as they don't call it nationalization.