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Obama on Nationalizing Banks and the Stimulus

When even Sen. Lindsey Graham, a solidly conservative Republican from South Carolina, says he “would not take off [the table] the idea of nationalizing the banks," something big is happening. And it turns out that while President Obama isn’t inclined to nationalize the banks, at least not yet, he hasn’t taken that idea off the table either.

Graham made his comment today on ABC’s “This Week.” Obama spoke about temporary nationalization during an interview Friday with a group of columnists he had invited to travel with him. The journalists on Air Force One were Ron Brownstein, Bob Herbert, Clarence Page, Kathleen Parker and me.

Tomorrow’s column has more on our interview with Obama. But the president’s comments on the banks play right into an ongoing debate -- see the excellent piece in today’s Post by Matthew Richardson and Nouriel Roubini -- so I’m posting Obama’s answers in detail because his words will influence the outcome of this debate and how the markets respond.

When it came to fixing the banks, Obama acknowledged that “working through all those bad debts is going to be really tough.” Asked about a range of choices, from Japan’s go-slow approach to Sweden’s temporary government takeover of insolvent banks, he said:

"As you pointed out, sort of along the spectrum there are two ways of handling this. There’s the Japan model -- as I said, they sort of papered things over, never really bit the bullet, took their medicine, and so you never got credit flowing the way it should have and the bad assets in their system just corroded the economy for a long period of time.

"Sweden, in contrast, took over their banks and took out the bad assets and then resold the good banks, the fixed banks, to private hands. And they were up and running pretty soon. And as I said when I was asked about this the other day, you can make a good argument for the Swedish model, except for this fact: They only had a handful of banks. We’ve got thousands of banks. The scale, the magnitude of what we’re dealing with is much bigger. We’ve got global financial markets that are reacting in all sorts of unpredictable ways. And so what we have to do is to we have to pull the Band-Aid off so we don’t duplicate what happened in Japan. But we’ve also got to make sure that in pulling the Band-Aid off we don’t just start doing so much damage that things end up getting much, much worse. Finding that sweet spot is what we’ve been working on for the last several weeks and what Tim Geithner is going to continue to be working on over the next weeks, months, probably through the end of this year."

When pressed on whether he was ruling out the Swedish approach, he declined to do so:

"My absolute goal is to make sure that our financial system is set and that we get credit flowing again, that homeowners, small businesses and large businesses will get -- invest and create jobs and get this economy going again. I’m going to be very practical in terms of how to approach it. What we want to do is to make sure that we get this right on the front end. What Tim Geithner did was to provide a framework. He is presenting then a timeline of how this is going to roll out over the next several months: When do we start applying these stress tests to the banks; opening up their books; making sure that everybody knows for sure exactly what’s going on in there; structuring plans to attract private capital to help deal with some of these weaker institutions. Some of the smaller institutions that don’t pose systemic risks, if it turns out that they’re in really, really bad shape, then we may have to reevaluate how we approach some of those institutions.

"He’s also working the Federal Reserve Bank and the FDIC to open up lines of credit that immediately provide some relief to small businesses and consumers. There are a whole bunch of credit markets, like student loans or credit cards, that are locked up right now, but actually the underlying assets in these securitized markets are not that bad, so we may just have to use a variety of different tools to give private investors some confidence on that front.

"But here’s the bottom line: We will do what works. It is going to take time to lay out every aspect of this plan and there are going to be certain aspects of any plan that was designed which will require reevaluation and then have some experimentation -- if that doesn’t work then you do something else. What I’m confident about is that the basic framework that we have put forward is the right one, and that it balances a whole host of issues, including, by the way, the issue of making sure the taxpayers aren’t just carrying the whole freight on this thing, and that we’re sharing -- that institutions on Wall Street are sharing the burden of cleaning up this mess.

"We want to help because -- not because I’m particularly happy about how Wall Street has been running its businesses, but because if we don’t fix the banking system and the credit markets, then businesses can’t make payroll and we continue to see pain among ordinary Americans. On the other hand, I think that folks on Wall Street have to understand that these burdens have to be shared, and so restrictions on executive compensation, transparency, making sure that shareholders are more effectively involved, all those things we’re taking into account. And by the way, the market is not always going to like some of those decisions, because ideally what they’d like to do, they’d like to continue business as usual and not pay a price for a whole bunch of really big mistakes that were made."

We pressed him again on his meaning, and he said:

"I will not allow our financial system to collapse. And we are going to do whatever is required to get credit flowing again so that companies and consumers can do their business and we can get this economy back on track."

He also spoke straightforwardly about what he wished had not been cut out of the stimulus bill in the compromise between the House and the Senate:

"I do think that we probably could have done more on the education innovation front. I think we could have done more with some of the health-care reforms that would lower costs. I think that if you ask governors, Republican and Democrat, around the country, about their budgets, they would argue that cuts in help to the states is going to put them in a very bad bind, particularly if the economy does not turn around fairly soon. So those are all issues where again, I might have designed it a little bit differently, but ultimately this is a framework that is going to create between 3 and 4 million jobs. And that was my bottom line."

By E.J. Dionne  | February 15, 2009; 4:34 PM ET
Categories:  Dionne  | Tags:  E.J. Dionne  
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Next: Banking for Dummies


Nationalizing banks is scary, but when the economists start lining up behind it, and, more impressively, when people like Sen. Lindsey Graham are willing to consider it, that marks it as (a) something seriously to be contemplated because (b) the banking system has got to be in much, much worse shape than just about everyone has been telling us to date.

I only hope that during this some banker's heads will roll. It boggles my mind that bankers, those icons of Capitalism, could so completely ruin a central prop of Capitalism, the financial system.

Posted by: klakey1 | February 15, 2009 7:10 PM | Report abuse

Isn't it ridiculous? As if it's about the banks. As if doing ANYTHING with the banks will increase economic activity. Everyone knows it won't. Why are we still in this dream?

Well, maybe because Obama--who is going to be indicted by Fitzgerald for his kickbacks as part of Illinois' combine--simply represents the powerful.

No, the thing to do is to ban housing evictions. It has to be individually enforceable, permanent, complete and absolute. What do I mean by that? I mean a right to housing. No more minimum scrutiny a la Lindsey v. Normet. Strict scrutiny--and higher!--for housing.

NOTHING else will work. Remember I said that. NOTHING else will work.

Take a look at my book, The Eminent Doman Revolt. It tells you what the future will be.

John Ryskamp

Posted by: philneo2001 | February 15, 2009 7:47 PM | Report abuse

When I watched that movie Zeitgeist Federal Reserve last year, this is exactly what it warned about. The Government should make good on deposits and let the Banks fail. They're all criminals anyway.

Posted by: HemiHead66 | February 15, 2009 9:19 PM | Report abuse

Remember that banks were under state regulation at one time and then federal courts ruled that our big banks couldn't be regulated when they were interstate or some such baloney. The big banks knew that federal control would be lacking and took advantage of the situation while fools like Graham sold their notion of less federal interference would mean greater innovation and etc.etc. Sure! Then the graft and corruption took off and we still don't have anything in place to regulate these giant entities that admit that they really don't do much of anything except get money for their shareholders and their CEOs.

Posted by: dmyers412 | February 16, 2009 3:44 AM | Report abuse

Socialism is here to stay. The government and the media are telling you that you can not make it without the government.

Posted by: thelaw1 | February 16, 2009 11:59 AM | Report abuse

I see nothing scary about nationalizing banks. Other countries have nationalized banks during crises and then privatized them when stability was acheived. It's not, as the right paints it, a flying leap down the slippery slope to totalitarian socialism. It's just an expedient.

I don't know whether it's a failure of our educational system or a success of the right-wing propaganda machine, but too many people today seem unable to distinguish between capitalism, an economic model, and democracy, a form of government. Even Ayn Rand acknowledged that our Constitution mandates a democratic republic, not capitalism. (She proposed amending the Constitution...)

It's become clear over the last few decades that social democracy is the sanest, most compassionate, and most successful form of econo-government yet invented. We shouldn't reject it just because it wasn't invented here.

Posted by: martimr1 | February 16, 2009 12:57 PM | Report abuse

At this moment, Obama's analysis of the choices ahead, including a variation of
Sweden's nAtionAliztion and his determination to keep tryimg whatever means of preserving the system reassures me that he is "in it" fully. confident that the "hurricane" is blowing his way. His flat assurance that he will not waive right or left.


Posted by: moore228 | February 16, 2009 1:13 PM | Report abuse

In reading the extensive quotes from the interview with the president, I tried for a moment to imagine President 43 speaking even one of those sentences, let alone speak them all and (1) understand what he's talking about and (2) make solid, logical sense to the listener.

An uncurious dullard president and his greedy, destructive cronies got us in this deep by lying to us and picking our pockets while the media fawned and praised.

I, like most, have my doubts about some aspects of the first efforts to right the ship, but, reading and listening to what this brilliant man thinks (and, more importantly, how he goes about his thinking) gives me, well, hope for positive, healing change.

We so desperately need big brains and modest egos to see the big picture, avoid clichés and platitudes, and understand that there are absolutely no easy answers to the fine mess that 30 years of conservative ideology, writ largest by W, has dumped in our distracted laps.

Posted by: DMC2 | February 16, 2009 1:29 PM | Report abuse

He should not nationalize anything. Maybe buy a bank in each state to service American credit and let them borrow and manage their bad call. 2 trillion in mortgages and 4 trillion in other leveraged debt possibly gone bad. Put it all into a pool, refinance all mortgages automatically nationally at a flat 4% by creating a super FHA that backs the bank's defaults. A lifetime 4 months non-payment extention to 5 months extra at the end will keep many in their homes and based on the paper value of bad assets writeoff over 20 years by the banks their losses will stop a big hit. Bad pool calls will be met by interest free loans from the Fed.

Posted by: jameschirico | February 16, 2009 4:17 PM | Report abuse

Only an idiot would associate nationalization of the banks with socialism. Thomas Jefferson, Washington, Adams, were all proponents of close, downright draconian, oversight and regulation of banks during the best of times, and temporary nationalization in the event of a banking emergency. If the present circumstances do not qualify as a national emergency, I cannot fathom what would. Nationalize them! And nationalize the New York STock Exchange at the same time. Allowing the collection of vermin, greedy subhuman cockroaches, that compose our corporate and Wall Street crowd, to freely run amuck is insanity. At the same time, every time some brainwashed Fox News-Limbaugh whack job pops up an uses the word "socialism", send a special government squad over to shoot them dead. Anyone that stupid has no right nor reason to exist on the same planet as the rest of us.

Posted by: mibrooks27 | February 16, 2009 5:50 PM | Report abuse

There are worse things than nationaliation. Like leaving the architects of the banking collapse in charge of the banks they destroyed.

Posted by: greystuul | February 17, 2009 2:12 AM | Report abuse

On February the 6th, Mr. Anders Aslund who originally co-created a successful swedish strategy for the bailout of banks in early 1990s, published in this paper a five step prescription for the current problems in USA. Some of the questions posed in this piece by President Obama, courtesy of Mr.Dionne, have been already answered by Mr. Aslund. I understand that learning curve can be bent upwards only so much, but Mr. Dionne obviously understands very little of the subject. The question is, does the President too?

Posted by: vojtek | February 17, 2009 6:06 AM | Report abuse

To see The Butter-Cutter's view of the Stimulus Package, go to:

Posted by: MAJUSMCRET | February 17, 2009 6:38 AM | Report abuse

Here is the thing;
Now that the SPENDING PACKAGE ('stimulus') is for the 'go' , it will do as, by logic is/was deisgned to do; TO PERPETUATE THE CORRUPTED MALPRACTICES BY THE ORIGINALS CROOKS AND THIEVES AT WALLSTREET THAT START ALL THIS, BACKED BY 'THE COVER-UP GROUP' (Barney Frank, Reid,Pelosi,Cox,Dood,....and others weeds) This will continue until 'kindom come' - sort of speak


But Obama and his gang will try ( ooohhh!! THEY WILL TRY ALRIGHT !) via SPLENDOROUS OBAMA-ELOCUENCY MIND PSEUDO-HYPNOTIC WAYS (just like using an enema in the past campaing before the FRAUDULENT ELECTIONS) to feed into the public that is because his leadership.


Hey! Obama and his gang are DRYING ! the taxpayer money reserves. WE NEED BETTER, HONEST AND CONCIOUS LEADERS AT HELM! The current administration is not good.

DC,Merrillville, IN

Posted by: morcab | February 17, 2009 1:07 PM | Report abuse

It looks like Obama is in the same path of 'almost dictator' Hugo Chavez from Venezuela.
First, nationalization of the private asset - banks and so on,, then, censorship - no more free speech etc, then, dictation of norms and guidelines for everything pertinent to the public.

A perfect conduit to socialism-marxism ...eventually comunism.

And the last straw by Chavez was, 'promote', 'ask' and really PUSH the LIFETIME PRESIDENCY (TOTALITARISM/DICTATORSHIP) to the masses there in that country.

Prediction !,...if this character Obama suggest this , chances are that the 'LETARGIC PSEUDO-HYPNOTIZED OBAMANIZED MASSES' will go for it, unless before, a DIRECT STRIKE for TOTALITARIAN /DICTATORSHIP comes first.

Should that be the case,.... ( ANY WHICH WAY YOU PUT IT )?,...then, the scenario is more scary that anything else,... for then chances are that we might just will have HERE ! in our country - IN MAINLAND ! a CIVIL WAR ( A REVOLUTION ! )
Correct !, just like one of those third world countries with TYRANTS AT HELM !

People, this does not looks good at all, I hope and wish I am completely and totaaly wrong and the way to put this gogus administration out of commision is by TRUE HONEST AND CLEAN NON-CORRUPTED VOTE IN THE CLASSIC BASIC AMERICAN WAY. Not as FRAUDULENT as it was in the past elections( REMEMBER ACORN AND AMONG OTHERS THINGS ?)



Merrillville, IN

Posted by: morcab | February 17, 2009 1:40 PM | Report abuse

I propose that the Government do exactly as the private sector would in similar circumstances: namely practice "lemon socialism" during bank nationalization. The worst banks should be left to their fates (FDIC assistance for depositors only)and the banks deemed capable of recovery should be nationalized. This is not only just, in a capitalistic society, it would also help to solve the questions of scale raised by critics of the Swedish model.

Throwing money at finance and Wall Street miscreants will only reward them and we'll have to deal with a similar crisis in another generation unless we make examples of today's disgraced "masters of the universe". It's not only smart policy, it's smart politics.

Posted by: Renpech | February 17, 2009 2:26 PM | Report abuse

Someones said that after this 'stimulus' the 'hard part 'is to come.

Hardly a hard part,... the only thing Obama and his gang has to do is to enunciate lame excuses for anything and everything that goes different than the made promisses.It should be easy for the presidentt as long his 'almost hypnotic power over the masses; ( just like Hitler, according to somes historians) countinues working.

So, that way the 'ORIGINATORS' ( the crooks and thieves from the financial sector backed-up by the 'cover-up goup' - Frank, Pelosi,Reid,Dood, Cox and others weeds) will continue... RUINING THE TAXPAYERS.....SO 'dios amigos' to our GREAT LAND as we know her once.

Quite pathetic ! , right?,...well, you wanted Obama?,...EAT OBAMA NOW!

sleep well,
DC,Merrillville, IN

Posted by: morcab | February 17, 2009 3:19 PM | Report abuse

I would like to know why the officials in charge do not arrest and prosecute the CEO's etc. who did this to our system.
The media never asks why it is not being done and I for one and I'm sure there are many more who would like to know also. Poor Martha Stewart was arrested, tried, convicted, sentenced, and served her time for supposedly under $50,000.00 worth of profits made for selling stock under her brokers advice ("they" called it insider trading)just before it plummeted in price.
If you ask me the people running Enron, the banking industry, the insurance industry , the drug industry (including the mess that is healthcare) etc, etc, etc, Oh, and don't forget the politicians who are responsible for making the laws that allow all this to happen "legally". well, they should all be taken out of their positions of power and all their assetts taken away from them to help pay for the mess they have created and then you can ship them off to fight in the middle east with a BB gun!
I just answered my original question. It is because the ones in charge made the laws that allowed it and they are in business with the CEO's etc so they can get all the gazillions of dollars they can grab and leave the public in the mess we're in . Hopefully Obama is not the same type of crook the Bush/Cheney administration was but only time will tell.

Posted by: bluidbear | February 21, 2009 8:14 AM | Report abuse

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