While conservative financial pundits and Wall Street kingpins work themselves into a frenzy over the prospect of nationalizing floundering banks, one key fact is missing from the discussion — it’s already been done. President George H.W. Bush created the Resolution Trust Corp. to save failed savings and loans following the financial meltdown spurred by the Reagan recession.
Zach Carter follows up on the nationalized banks fear-mongering with a shout-out to The Nation’s Thomas Ferguson and former Senate Banking Committee economist Robert Johnson, who write about the history and pitfalls on nationalizing banks.
Carter writes on The Media Consortium economic news ladder:
But getting Obama and Treasury Secretary Timothy Geithner on board is only half the battle. In a piece for The Nation, Ferguson and Johnson detail how hedge funds and private equity firms hope to capitalize on a big bank nationalization policy by using political clout to score unfairly cheap prices from the government.
“Much of the wind in the sails of this new push comes from private equity firms like KKR, Blackstone, or their political allies, mostly, though not entirely within the Republican Party,” Ferguson and Johnson write.
When the government nationalized troubled banks with the Resolution Trust Corp. under President George H.W. Bush, politically connected investors made out like bandits when the government resold the banks into the private sector. It is important that this corruption not be repeated. We don’t tolerate our politicians doing favors for wealthy constituents, and we shouldn’t allow our financial regulators to do so either.
But here’s the money quote, so to speak, from the Nation article itself:
Just as with the Resolution Trust, the temptation to looting by politically connected investors is going to be huge. The National Journal recently quoted Robert Dugger, a partner in an investment firm, suggesting that the task of disposing of bad assets “poses every potential problem that Iraq has: corruption, conflicts of interest, theft, and waste of government resources. It’s Blackwater, Halliburton, and KBR, but right here at home.”
Can it be done? Yes. Do the White House and Congress have the political will to see it through? That remains to be seen.
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