February 2, 2009

Is the Entire Bailout Strategy Flawed? Let's Rethink This Before It's Too Late

By Joseph Stiglitz, by way of Alternet:

For a while, there was hope that simply lowering interest rates enough, flooding the economy with money, would suffice; but three quarters of a century ago, Keynes explained why, in a downturn such as this, monetary policy is likely to be ineffective. It is like pushing on a string.

[...]

What's the alternative? Sweden (and several other countries) have shown that there is an alternative -- the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance.

It is standard practice to shut down banks failing to meet basic requirements on capital, but we almost certainly have been too gentle in enforcing these requirements. (There has been too little transparency in this and every other aspect of government intervention in the financial system.)

To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet.

click here for all of it

Joseph Stiglitz used to work for the World Bank. He was basically kicked out for telling journalists like Greg Palast exactly what they do: fuck people over, whole countries even (Latin American ones often).

Stiglitz knows globalization inside and out; he's been on the inside and now he's on the outside. He's probably one of the most important economists there is, because he was a free trade baron who did a 180 in favor of the public interest. It doesn't get much cooler than that.

So I'm saying we should trust Joe on this one, consider this idea, look to Sweden, and fix this mess before we're all standing in bread lines, reminiscing about how we loved our SUVs and MacBooks so much. Maybe when the Senate votes down Obama's budget, this idea can get tabled.

It would behoove all of us to call our representatives and send them this message:

NATIONALIZE THE BANKS!

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