Business media is filled with discussion, hype, arguments, counter arguments, and for and against nationalization of US banking system (or perhaps selective banks?). It is very natural for individual investors to get overwhelmed and confused about the business environment. I do not know whether government will nationalize or not. I cannot predict it. I am not an economist, not a banker, not financial engineer, not an accountant, and hence certainly not from Wall Street. Even then I believe that government’s involvement is not a good idea. And here is why?
The faith and confidence in American free market system will be put to test. This would have a far reaching affect on the American economy than individuals like us can even image. Countries across the world who are (or were) more than eager to participate in US economy will slowly start backing off. They will start looking for alternative, whether within their own countries or within regional areas. The same goes with private investors. Any place where governments get involved, the general attitude of private investors is to keep off that place. Banking system is the heart of economy. If it starts pumping using government’s life support system, it will be difficult to get off of it. In addition, it will continuously weaken the other parts of the economy.
Governments cannot run country’s financial institutions. Freddie Mac and Fannie May are our own very good examples. Before they failed in 2008, weren’t these two institutions quasi-government enterprise? Being part of the government they did not survive, then how can we say banks will survive? There are umpteen examples worldwide where nationalized banking system is never a success. There can be an argument that in some case nationalization helps. If one looks are banking system alone, then yes, it may help stabilize. However, one needs to look beyond the banking system i.e. its affect on the economy. It is kills the entrepreneurial behavior of the mass population and turn them defensive. Taking Sweden as an example is not a correct analogy, due to the difference in (1) sheer size of economy; (2) number of banks; (3) inter relationship with world economy; and (4) factors leading to this malaise.
Let the deleveraging happen, its takes time. Private sector created this mess, let private sector clean the mess. In this need our hour, government should act as a facilitator instead of getting involved. Provide advisory or monetary or fiscal support to private sector and charge a fee for it. For example, if BAC and C are not solvent, work with the board/management to make it solvent in the best possible way. If government is so much interested in clean up; then they should clean you its own regulatory system, its own watch dogs, and its own bureaucracy. As an after thought, I would like to know what is behind groups wanting nationalization. Are the economist purporting nationalization influenced by Wall Street?
So needless to say I do not like the idea of nationalizing selective banks or banking system. Let me know what you think by leaving your comments in comments section below.