Monday, February 16, 2009

The Case for Nationalizing the Entire Economy - TIME

As a Western New Yorker (where it is both hilly and winter about 10 months a year), I know all about slippery slopes. That is what always comes to mind when nationalization of banks is discussed. The following is from Time. I do not know where the author (Doug McIntyre is from), but it must be both mountainous and cold). That said, he absolutely nails the big problem with nationalization.

The Case for Nationalizing the Entire Economy - TIME:
"Bank ownership becomes more complex when a firm owned by the government does something materially different from what its competitors in the private sector do.... The relationship between a national U.S. bank and private banks both inside and outside the U.S. causes a series of inequities within the system. A government-controlled bank might offer mortgages at extremely low rates, rates so low that they clearly do not take into account the level of home loan defaults. From a policy standpoint, it may make "sense" to do that to help buttress the housing market. But, to some extent that moves the government's control of the credit system from nationalizing banking to nationalizing the home lending system. The government could decide to apply the same principles to consumer credit loans and business lending.

It may just be a better idea to nationalize the entire economy and be done with it."

These behavioral differences (and even worse incentives than the executives had) is why question #4 scared me so much last week.

1 comment:

Bruce Krasting said...

I am very opposed to the entire nationalization effort. However as we look at the financial market today I see that there are very few choices left.I wrote "An Alternative to the Bad Bank Plan".

Any thought you have would be appreciated.
Bruce Krasting