New column: The already-nationalized banks

I’ve got a new column online and in the issue of TIME with a fraying rope on the cover. It’s not entirely new—bits of it already appeared in a TIME.com piece I wrote Tuesday—and what I really want to talk about are the other economy-related pieces in the magazine: There’s David von Drehle’s wrenching House of Cards: The Faces Behind Foreclosures. There’s Stephen Gandel’s revealing One Bad Bond, about a deeply toxic CDO-cubed put together in May 2007 by the geniuses at Credit Suisse (the graphic that defines the piece is only available in the dead-tree edition). There’s Adam Zagorin and Michael Weisskopf’s Inside the Breakdown at the SEC, which disabused me of the notion that maybe Chris Cox was just a victim of bad timing. There’s Sean Gregory on the still-thriving business of dentistry (people under stress gnash their teeth a lot). Then there’s that Joel Stein column about the housing market that I already discussed. Even Klein and Poniewozik sort of write about the economy. To think that, when I got to TIME two years ago, it was a big deal to get one little economy-related column or article into the magazine.

Oh, so about that column I wrote. It begins:

Our country’s banking system was effectively nationalized in October when then Treasury Secretary Hank Paulson called the heads of the nine biggest banks into his office and told them they couldn’t leave before agreeing to take billions of dollars of government money and hand over ownership stakes in return.

At least, that’s one way of looking at it. You could also say bank nationalization began in 1984 when regulators decided that Continental Illinois, then the nation’s seventh largest bank, was too big to fail and put the Federal Deposit Insurance Corporation (FDIC) in charge of it. Or maybe the crucial moment came in 1933 when Congress decreed that small depositors should be protected from bank failures by the FDIC. Or in 1913 when Congress created the Federal Reserve System to halt banking panics and regulate the money supply.

You could, if you really wanted to stretch it, go back to the 1864 advent of the national banking system and the first federal bank regulator, the Comptroller of the Currency. Or even the chartering in 1791 of the partly government-owned Bank of the United States–Alexander Hamilton’s baby, which died in 1811, seven years after he did. Read more.

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

plukasiak

I think the column was a big improvement over the web article — but was really disappointed in “One Bad Bond”. It really would have been interesting to know what how that bond was structured, and what it was comprised of. (is that information better explained in the graphic we’re being denied?)
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curmudgeon57

Level-headed, not stretching the facts or coming to abrupt conculsions, and above all not in any way colored by bias or political correctness. This is why I read you, Justin.
bryanfromhouston

Thank God for a voice of reason. When are you going on CNN to replace Ali Velshi or Suzie Orman. Neither are providing their viewers a service. Often, I feel dumber after listening to them.
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In addition, thanks for that link to Gaussian copula function. That was awesome. Friends and I have been discussing how you overcome such a gross error and massive stupidity.
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So far, all we can conclude is that we are pretty well screwed in the near and intermediate term.
randymiller

Words have meaning.

Every time I hear someone discuss “nationalizing” banks and financial institutions, I cringe. For anyone who has followed the history of the last half of the 20th century, nationalization means socialist governments in the third world seizing the assets of private companies, usually US companies, with little or no compensation. One example from the seventies is the Allende government in Chile seizing the assets of mining companies such as Anaconda copper, after Anaconda had invested large amounts of money in developing those mines.

No sensible person wants to nationalize Wall Street banks that way, so we need to quit using the word with all its negative connotations. The better word is to “hospitalize” the banks. So far we have been giving them transfusions. We need to get them to a place where we can stop the bleeding, perhaps remove the bad parts the way you would remove a ruptured spleen. In some cases we are going to see that they are terminal, and need to be allowed to die, removing healthy parts for transplant to another body. Do all this with the idea that you want to get them out of the hospital in a reasonable amount of time.

I will say it again, anytime some media person uses the word nationalization in reference to the current situation, it dredges up very harsh connotations for any American over 40. The intent of nationalization is to take over private property and having it controlled forever by the state. The communists taking over all private property after the November revolution was nationalization of private property. The Chinese communists doing the same was nationalization. I have already used the Allende example. RTC, and FDR’s bank holiday were not nationalization. There was no intent with those two events for long term control, and there isn’t now.

So quit calling it that, because doing so distorts the picture the American people and markets are getting.