TO GET LEVERAGE, NATIONALIZE!

THINK OUT OF THE OLD BOX. 

While the USA is floundering, the Europeans are nationalizing ailing banks. Nationalizations protect taxpayers, respect the capitalist principle that if you paid for it, you own it, and also give a tremendous boost of leveraged lending capability (by the fraction 100/8, that is, more than 12). So if the 700 billions of the Paulson plan had been used for nationalizations, the lending capability of the US financial system would have augmented by more than 9 TRILLION dollars. Yes, 9 followed by 12 zeroes. Real money, real help.

Fortis, the large Benelux bank, was part nationalized (yes, it’s possible to part nationalize), and Britain, once again nationalized some.

Why is nationalization not considered in the USA? A charitable explanation is that it is related to the frame of mind that makes the USA the only country in the world to use a system of units dating from the Middle Ages. A less charitable explanation is that it is the plutocracy that takes all the decisions (Paulson used to be worth more than 500 million dollars).

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Patrice Ayme

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P/S 1: The plan proposed by Paulson violated two basic principles of the US Constitution (equality and the general welfare clause).

P/S 2: Nationalizations would allow direct supervision by civil servants, hence direct dialogue bank to bank by civil servants, thus unfreezing liquidity flows. As the Great Depression of the twentieth century unfolded, the lack of trust from bank to bank became a major problem, and we are back there now.

An interest of nationalization is that the old management can be thrown out.

A radical way to insure trust, is to have the government insure all inter bank loans. That should be implemented worldwide. To avoid excess and corruption, justice departments should be aggressively involved. So should they be for punishment and recovery of stolen assets. After all, Wall Street bonuses in 2007 were more than 100 billion dollars.

Of course, the word “nationalization” is not used in the USA. Too socialist sounding. “Equity injections” is preferred. In truth there are many sorts of details in nationalizations. For example, during many decades, the British government owned a “golden share” in BP, British Petroleum, one the world’s most powerful and profitable corporations.

P/S 3: One of the fundamental problems is that the US population is over indebted. So the government will have to step out, and make work. No problem: much of the US infrastructure is obsolete.  “Making work” does not necessarily mean reinstating the New Deal or Stalinism. It could be as simple as relaxing some regulations and instituting others, to force some new economic activity.

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