Nationalize the Banks : Baker

Published on Sunday, February 8, 2009 by Beat The Press
Dealing With Bankrupt Banks: Nationalization or Welfare

by Dean Baker

The media continue to do more to misinform the public than to inform
them when it comes to plans for fixing the financial system. Following
the absolute worst in journalistic practices, a front page Washington
Post article explains the Obama administration's policy by telling
readers that the "approach reflects Treasury Secretary Timothy F.
Geithner's philosophy of how governments should respond to financial
crises."

Trees had to die for this garbage? The reality is that the reporters
have no clue as to what Timothy F. Geithner's philosophy of how
governments should respond to financial crises. The reporter knows
what Timothy F. Geithner told them, so why don't they just stick to
passing this information along to readers instead of speculating about
his innermost thoughts?

The excursion into philosophy deflects readers from the real issue.
Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in
business. In effect, he wants to tax teachers, fire fighters, and Joe
the Plumber to protect the wealth of the banks' shareholders and to
pay high salaries to their top executives. No readers of this piece
would understand that this is the process being described.

The Post editorial page carried on with this deception. An editorial
on saving the banks dismissed nationalization because it would involve
the government in running the banks. Then it discusses the idea of
buying bad assets and warns, "but there is a huge risk that the
government would badly overpay in the first place."

Actually, this is not a risk, this is the point. If the government
paid the market price for these assets the banks would be bankrupt and
we would be back to step 1, nationalization. The point of buying the
bad assets is to pay too much, so that the banks can get enough money
to stay solvent. (It is worth noting that deciding how much the
government will overpay, and to whom, also involves the government in
running the banks in a really big way.)

It would be nice if the Post and the rest of the media would report
honestly on the bank bailout and stop trying to conceal plans for a
massive redistribution of wealth to the bank shareholders and their
top executives.

Dean Baker is the co-director of the Center for Economic and Policy
Research (CEPR). He is the author of The Conservative Nanny State: How
the Wealthy Use the Government to Stay Rich and Get Richer (
www.conservativenannystate.org) and the more recently published
Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also
has a blog, "Beat the Press," where he discusses the media's coverage
of economic issues. You can find it at the American Prospect's web
site.