All I know about the economy—and it’s not much, seriously—comes from running a small business for the past 30 years. But I’ve come to believe we’re collectively in water so deep that even the experts don’t have a clue. Take Alan Blinder’s commentary in today’s New York Times, as indicative. Blinder is an economics and public affairs professor at Princeton, former vice chair of the US Federal Reserve, and Democratic advisor.
Blinder says we can’t nationalize the bad players in the financial industry because there are too many of them, it’s too hard to distinguish the bad players from the good, government’s not good at managing businesses, and the domino effect would kick in.
He may be right but it feels like he’s being disingenuous. There’s something less than 9,000 banks in the US. Subject every one of them to the stress test (or something like it). Those that pass get to continue business as usual; those that fail get nationalized with government managers. Medicare is widely acknowledged as better managed than the private sector, and how could a government manager possibly do any worse than the asshats that have been running the financial sector?
On the one hand nationalization. On the other mark to market. The mark to market argument goes like this: all of the so called toxic assets held by the institutions in trouble would be assigned a value based on the current market price for the asset. Once and for all. What’s happened is that these failed institutions have been allowed to continue to carry their toxic assets on their balance sheets at a value far above what the market would pay for them in the hope that the market will come to its senses and properly value the assets these boneheads hold.
So, we can’t nationalize because it’s antithetical to the American way; similarly we won’t mark to market because the rich would have to take a haircut and a shave.
Blinder favors an approach generally called good-bank, bad-bank. He would have each troubled institution split in two. The good bank would get the assets and the bad bank would get all the toxic sludge. The problem is, US taxpayers would end up recapitalizing the good banks. It’s a false middle way.
Times running out for a consensus on a middle way. Any middle way would have to soak the rich who greedily gambled their way into this mess. Anything less will bring the shell-shocked US populace out of its collective daze with the pitchforks.
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