Should the U.S. Government Nationalize “Broken” Banks?

by Richard Morrison on February 3, 2009 · 1 comment

in Bailout Watch, Economy

Such is the title of the latest BusinessWeek.com debate. Taking the “con” side is CEI’s own Eli Lehrer, who argues (in part):

Long-term government bank ownership, in any case, would simply make the country poorer. Banks actually create money when they lend it out, but doing so only has positive overall economic consequences when the loans get repaid. Government-owned banks would face enormous, understandable pressure to lend to politically powerful groups and industries that can’t reasonably repay their loans. Even the best managers couldn’t overcome this pressure.

Even in the “post-partisan” paradise of the Obama Era, public choice still matters!

*Photo credit: Declan McCullagh.

Tagged as: Bailout Watch, banking, banks, corporatism, failout, finance, government ownership, lending, nationalize, socialism, Wall Street

{ 1 comment }

Doug Thorson February 3, 2009 at 11:15 am: First of all I must state, I cannot believe that we are debating the idea of nationalizing failing banks. What country am I living in?
Thanks Mr. Leher for stating the point so precisely, "Long-term government bank ownership, in any case, would simply make the country poorer." Not to mention that once the government takes ownership of anything it is highly unlikely to sell it back to the private sector. Without the profit motive bank managers (who will most likely be paid at below market rates therefore attracting less skills managers) will not be able to compete with private banks. And then what? Will all banks have to be nationalized in the name of fairness or will the federal government just pass blanket regulations creating a level playing field and driving out all good managers?
I guess I could go on and on. Keep-up the fight.
DT