The Road to Bank Nationalization

By John Browne, Kitco

This week, seven major corporations announced major layoffs, adding 72,000 to the unemployed. At the same time, lending by the big banks fell. With falling demand for loans, it is little wonder that President Obama described the national economic situation as “worsening day by day.” Clearly, we are heading into a deepening and severe recession that is spreading worldwide.
As the reckless speculation of the major money center banks became clear in the second half of 2008, there was resistance to rescue efforts. However, the perceived wisdom was that these banks were too large to fail. Congress approved the $700 billion TARP to rescue them and the financial system. Now, there is growing demand by politicians for the banks to lend, in the face of falling loan demand. Clearly, a Democrat Congress is intent upon using Wall Street to dispense taxpayer funds to Main Street. This is socialism and strikes at the very heart of the ‘American Way’ of free enterprise.

Three major questions arise. Firstly, can the banking system be used to dispense cash to un-creditworthy citizens? Secondly, should the free-market banking system be used for political purposes? Thirdly, can the American government afford to bailout the collapsing economy and banking system simultaneously?

Acknowledging Tim Geithner’s vow to employ “credit action on a dramatic scale”, there is little doubt that the new Treasury Secretary thinks the banking system not only can, but will, be used to push taxpayer funds into the Main Street economy. If so, would this not necessitate nationalization?

The original TARP was designed to ‘rescue’ the banking system by relieving it of depreciating toxic assets. Subsequently, the TARP was used to inject capital into the main money center banks. So far, despite its enormous size, the TARP appears to have failed. Read more….