"Needed: Less Talking About Nationalization, More Action"
As you know, I agree with Chris Dodd on the merits about this but I’m not sure it’s wise for someone in his position to be thinking aloud like this:
Senate Banking Committee Chairman Christopher Dodd said it may be necessary to nationalize some banks for a short time, as Citigroup Inc. and Bank of America Corp. tumbled today on concern the U.S. may take over both banks.
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said in an interview on Bloomberg TV’s “Political Capital with Al Hunt” to be broadcast later today. “I’m concerned that we may end up having to do that, at least for a short time.”
Now it’s good of Dodd to be focused on the short duration of any such action. The idea isn’t that we want to have government-owned banks as major players in the financial sector. The idea is that if there’s an institution such that we need the government to “clean up” its balance sheet (i.e., have the taxpayers eat the loss) in order to get the bank functioning again, that the taxpayers ought to be able to recoup some of those losses by re-selling the now-solvent bank back to private investors.
But that said, I don’t think we need policymakers musing about this and potentially creating problems for non-insolvent banks. What’s needed is action, not talk. Actually, what’s needed is silence, then action, then talk. If the administration isn’t convinced of this course of action yet, then Dodd needs to talk to people inside the White House, inside the Treasury Department, and inside the Fed not to Bloomberg TV.