Tim Geithner is considering the use of a giant government-funded “bad bank” to help the country’s financial sector
Alan Greenspan, the former Fed Reserve chairman, told the Financial Times that the US government may potentially have to nationalize some of its banks on a temporary basis to help repair the financial system and restore the flow of credit .
Greenspan said nationalization could be the least bad option left for policymakers. This is a big change for Greenspan who gave banks much independence during his helm as Federal Reserve Chairman.
“It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,” Greenspan told the FT. “I understand that once in a hundred years this is what you do.”
Greenspan also told the FT “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the FDIC or some other mechanism. He added that temporary government ownership would “allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”
The talk of banks being nationalized seems to be gaining ground and Alan Greenspan’s talking it up surely won’t quiet the chatter.
The former Fed chairman, who the Financial Times nicknames “the high priest of laisser-faire capitalism”
The first sign of the apocalypse
OR THE latest sign that America’s financial system is in crisis: Alan Greenspan has come out in favour of bank nationalisation.
One of the reasons Timothy Geithner, the treasury secretary, did not propose something along these lines was because he didn’t think Congress would get behind it.
But along with Mr Greenspan, Lindsey Graham, a Republican senator, also voiced cautious support for bank nationalisation this morning.
If Mr Geithner wants to make this trillion-dollar move, he’d do well to take advantage of this momentum, which is surprisingly emanating from the right.
(On the other hand, we could always give this a shot.)
February 12, 2009
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