As we go to press, it appears that the Obama administration is, extremely reluctantly, considering the possibility of nationalizing some of the key banks, despite a number of statements to the contrary. If it happens, a government takeover would be a desperate measure in order to prevent these banks collapsing outright and causing even further economic devastation.
A NY Times editorial approvingly quoted the Obama administration’s preference for a “sound privately-owned banking system” before going on to say: “We share that preference. But it looks as if the best way to get from here to there is for some of the banks to spend some time in the government’s hands.” (2/21/09)
Incredibly, this is also the position of arch neo-liberal Alan Greenspan, the former chairman of the Federal Reserve, who played a key role in creating the bubble-filled, debt-driven economy of the past 20 years.
He recently declared: “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” (Financial Times, 2/18/09)
Nationalization is being seriously considered after a series of incredibly expensive measures to restart capitalism’s financial engine beginning last fall (even before the Obama administration took office, the total value of the different forms of assistance extended by the government and the Fed amounted to a staggering $7.8 trillion!).
This included a part-nationalization of a number of banks by the Bush administration, where the government bought a stake in these institutions but received in return very little, if any, control over the banks’ day-to-day governance.
The result, as is well known, is that the banks hoarded the money, lending did not restart, and the economy has continued to slide downhill. This time, government intervention could look quite different. Shareholders could be liquidated, management replaced, and real restrictions placed on pay.
It should be emphasized that if key banks are nationalized the goal will be to make government control as brief as possible and to return the banks to private control as soon as they are solvent. As one finance blog says: this type of nationalization would be better termed “pre-privatization.”
Nationalization will possibly not just affect the banks. The bailout of the auto industry also entails an element of government control, and this could conceivably extend to other industries “too big to fail.”
The possibility of nationalization, alongside the recently-passed stimulus package, is drawing the usual charges from the Republican right that this amounts to “socialism.”
In one sense, nothing could be further from the truth. Such nationalizations will in no way be part of beginning a transition to an economic system based on democratic control and planning of society’s main economic resources for people’s needs rather than profit, i.e. actual socialism.
But in another sense, the right-wingers have a point. These measures represent a clear break with the neo-liberal ideology of the past historical period. They are an implicit admission that the “free market” has dragged society in the U.S. and internationally into a huge mess, with devastating consequences for tens of millions of working-class and middle-class people.
Defending the Interests of Big Business
President Obama claimed in his address to Congress at the end of February that the bank bailouts are really about helping ordinary Americans, because until the banks are in a sound position they will not be able to lend to finance mortgages or car payments or help companies create jobs.
This is simply not true. The purpose of bailing out the banks (or for that matter, nationalizing them) is to restart the financial machine so that capitalists can get back to the business of making profits.
If the real goal was to help working-class people, the government’s first steps last year would have been to stop foreclosures, extend unemployment benefits to laid-off part-time workers, massively raise the federal minimum wage, and stop all layoffs and cutbacks in the public sector.
Only after a year of this horrific recession, and after literally trillions of dollars were thrown at the banks, were any real measures (still very partial) taken to alleviate the suffering of ordinary people.
The truth is that even with drastic measures like nationalization the economy will continue to collapse for another period and millions more will lose their jobs. The recovery, when it comes, will be quite weak.
It may be comforting that some executives could have their pay cut or even be laid off if some banks are nationalized, but the overwhelming burden of paying for the crisis created by capitalism will be borne by working people. The future under this system is looking increasingly bleak.
Socialists have an alternative. We argue for public ownership of all the major banks under democratic workers’ control, not as a temporary measure but as the start to a radical overhaul of the economy.
Their books should be opened to public scrutiny. All punitive actions against ordinary people should be halted. Small investors would be compensated based on proven need, and of course people’s pensions, which are often invested in these institutions, would be protected. The capitalist investors would not.
Not only should the management of the banks be fired, but those most responsible for creating the mess should be brought to justice. So too should the officers who authorized billions of dollars in bonuses since receiving massive amounts of taxpayer money!
Crucially, under democratic workers’ control the financial sector would no longer be run on a for-profit basis. The banks would promote the production and development of goods and services needed by the majority of the population, instead of handing over money to rich CEOs who have driven their companies into the ground.
The boards of directors would be replaced by governing bodies made up of elected representatives of the workers at these companies, as well as workers in other industries, homeowners, and small business, i.e. all the people whose lives are so drastically affected by the workings of the banks.
And why should we stop with the banks? The oil and energy sectors should also be brought into public ownership. Given the role these corporations play around the globe, their resources should come under the control of representatives of working people internationally with the aim of rapidly and drastically reducing greenhouse gases and switching to alternative and clean sources of energy. The auto industry should likewise be fully nationalized.
Of course, the most popular measure of nationalization would be to bring the health insurance and pharmaceutical industries into public ownership and create a true universal healthcare system.
What is really needed is a socialist plan of production with full input from all sections of the working class to really get to grips with all the key issues facing working people here and internationally. Not profit, but people’s needs must be the key criterion. Public ownership of key sections of the economy is critical to making this happen.
But at this moment, the most urgent task is for working people to mobilize in defense of jobs, social services, and all the gains they have won in the past. Such a struggle will require political independence from both the Democrats and Republicans, who at the end of the day, despite their differences, are both committed to maintaining the disastrous free-market system at all costs.