March 4, 2009, 6:58 am

The A.F.L.-C.I.O.’s executive council will call on the Obama administration on Wednesday to speed the nationalization of problem banks to stimulate lending and lift the sagging economy, The New York Times’s Steven Greenhouse reported.

The labor federation, a lobbying powerhouse that represents 10 million workers, will thus become one of the first groups — and certainly the most powerful — to call for moving more aggressively on nationalization, both to counter Republican and business cries against it and to press the Obama administration not to vacillate over such a move.

A.F.L.-C.I.O. officials asserted that the administration’s practice of giving billions of dollars in dribs and drabs to distressed banks had failed to restore their solvency, leaving them as zombie banks that largely refrain from lending, thereby contributing to the economy’s decline.

The executive council is scheduled to approve a statement that criticizes the Obama administration for indulging shareholders of distressed banks by not nationalizing the banks to speed the cleanup of their balance sheets.

“We believe the debate over nationalization is delaying the inevitable bank restructuring, which is something our economy cannot afford,” a draft of the council’s statement said.

The labor leaders also asserted that the Obama administration, like the Bush administration, had failed to obtain fair value for the tens of billions it had invested in distressed banks.

“By feeding the banks public money in fits and starts, and asking little or nothing in the way of sacrifice, we are going down the path Japan took in the 1990s — a path that leads to ‘zombie banks’ and long-term economic stagnation,” the draft statement said.

The statement makes clear that the group wants to add its political and lobbying muscle to calls by Joseph E. Stiglitz, Nouriel Roubini and other economists in favor of nationalization.

Labor leaders said the administration appeared to be vacillating on nationalization partly out of fear of Republican attacks that it was adopting socialist policies.

Banking executives have spoken out against nationalization, saying it would hurt shareholders and insisting they can nurse their banks back to health.

Some Obama officials voice fears that it will be hard to manage nationalized banks and that nationalization could drive down the shares of other financial institutions by generating fears that additional banks will be taken over.

A.F.L.-C.I.O. leaders said they did not favor long-term nationalization of banks, but rather temporary trusteeships in which the government would take a controlling stake in a bank, clean up its balance sheet, then spin it off.

“The result should be banks that can either be turned over to bondholders in exchange for bondholder concessions or sold back into the public markets,” the executive council’s draft said.

James A. Baker, the Treasury secretary under President Ronald Reagan, wrote in The Financial Times on Tuesday that temporary nationalization might be necessary to inject public funds into problem banks.

“I abhor the idea of government ownership — either partial or full — even if only temporary,” he wrote. “Unfortunately, we may have no choice. But we must be very careful. The government should hold equity no longer than necessary to restructure the banks, resume normal lending and recoup at least a portion of taxpayer investment.”

The labor leaders said that 43 percent of the nation’s bank assets were held by four institutions — Citigroup, Bank of America, Wells Fargo and JPMorgan Chase. One A.F.L.-C.I.O. financial expert said Citigroup and Bank of America were insolvent and candidates for quick nationalization.

“When these institutions are paralyzed, our whole economy suffers,” the labor statement said, adding, “However, government interventions must be structured to protect the public interest, and not merely rescue executives or wealthy investors.”

AND so on the 29th day of his presidency, Barack Obama signed the stimulus bill. But the earth did not move. The Dow Jones fell almost 300 points. G.M. and Chrysler together asked taxpayers for another $21.6 billion and announced another 50,000 layoffs. The latest alleged mini-Madoff, R. Allen Stanford, was accused of an $8 billion fraud with 50,000 victims.

“I don’t want to pretend that today marks the end of our economic problems,” the president said on Tuesday at the signing ceremony in Denver. He added, hopefully: “But today does mark the beginning of the end.”

Does it?

No one knows, of course, but a bigger question may be whether we really want to know. One of the most persistent cultural tics of the early 21st century is Americans’ reluctance to absorb, let alone prepare for, bad news. We are plugged into more information sources than anyone could have imagined even 15 years ago. The cruel ambush of 9/11 supposedly “changed everything,” slapping us back to reality. Yet we are constantly shocked, shocked by the foreseeable. Obama’s toughest political problem may not be coping with the increasingly marginalized G.O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.

This phenomenon could be seen in two TV exposés of the mortgage crisis broadcast on the eve of the stimulus signing. On Sunday, “60 Minutes” focused on the tawdry lending practices of Golden West Financial, built by Herb and Marion Sandler. On Monday, the CNBC documentary “House of Cards” served up another tranche of the subprime culture, typified by the now defunct company Quick Loan Funding and its huckster-in-chief, Daniel Sadek. Both reports were superbly done, but both could have been reruns.

The Sandlers and Sadek have been recurrently whipped at length in print and on television, as far back as 2007 in Sadek’s case (by Bloomberg); the Sandlers were even vilified in a “Saturday Night Live” sketch last October. But still the larger message may not be entirely sinking in. “House of Cards” was littered with come-on commercials, including one hawking “risk-free” foreign-currency trading — yet another variation on Quick Loan Funding, promising credulous Americans something for nothing.

This cultural pattern of denial is hardly limited to the economic crisis. Anyone with eyes could have seen that Sammy Sosa and Mark McGwire resembled Macy’s parade balloons in their 1998 home-run derby, but it took years for many fans (not to mention Major League Baseball) to accept the sorry truth. It wasn’t until the Joseph Wilson-Valerie Plame saga caught fire in summer 2003, months after “Mission Accomplished,” that we began to confront the reality that we had gone to war in Iraq over imaginary W.M.D. Weapons inspectors and even some journalists (especially at Knight-Ridder newspapers) had been telling us exactly that for almost a year.

The writer Mark Danner, who early on chronicled the Bush administration’s practice of torture for The New York Review of Books, reminded me last week that that story first began to emerge in December 2002. That’s when The Washington Post reported on the “stress and duress” tactics used to interrogate terrorism suspects. But while similar reports followed, the notion that torture was official American policy didn’t start to sink in until after the Abu Ghraib photos emerged in April 2004. Torture wasn’t routinely called “torture” in Beltway debate until late 2005, when John McCain began to press for legislation banning it.

Steroids, torture, lies from the White House, civil war in Iraq, even recession: that’s just a partial glossary of the bad-news vocabulary that some of the country, sometimes in tandem with a passive news media, resisted for months on end before bowing to the obvious or the inevitable. “The needle,” as Danner put it, gets “stuck in the groove.”

For all the gloomy headlines we’ve absorbed since the fall, we still can’t quite accept the full depth of our economic abyss either. Nicole Gelinas, a financial analyst at the conservative Manhattan Institute, sees denial at play over a wide swath of America, reaching from the loftiest economic strata of Wall Street to the foreclosure-decimated boom developments in the Sun Belt.

When we spoke last week, she talked of would-be bankers who, upon graduating, plan “to travel in Asia and teach English for a year” and then pick up where they left off. Such graduates are dreaming, Gelinas says, because the over-the-top Wall Street money culture of the credit bubble isn’t coming back for a very long time, if ever. As she observes, it took decades after the Great Depression — until the 1980s — for Wall Street to fully reclaim its old swagger. Not until then was there “a new group of people without massive psychological scarring” from the 1929 crash.

In states like Nevada, Florida and Arizona, Gelinas sees “huge neighborhoods that will become ghettos” as half their populations lose or abandon their homes, with an attendant collapse of public services and social order. “It will be like after Katrina,” she says, “but it’s no longer just the Lower Ninth Ward’s problem.” Writing in the current issue of The Atlantic, the urban theorist Richard Florida suggests we could be seeing “the end of a whole way of life.” The link between the American dream and home ownership, fostered by years of bipartisan public policy, may be irreparably broken.

Pity our new president. As he rolls out one recovery package after another, he can’t know for sure what will work. If he tells the whole story of what might be around the corner, he risks instilling fear itself among Americans who are already panicked. (Half the country, according to a new Associated Press poll, now fears unemployment.) But if the president airbrushes the picture too much, the country could be as angry about ensuing calamities as it was when the Bush administration’s repeated assertion of “success” in Iraq proved a sham. Managing America’s future shock is a task that will call for every last ounce of Obama’s brains, temperament and oratorical gifts.

The difficulty of walking this fine line can be seen in the drama surrounding the latest forbidden word to creep around the shadows for months before finally leaping into the open: nationalization. Until he started hedging a little last weekend, the president has pointedly said that nationalizing banks, while fine for Sweden, wouldn’t do in America, with its “different” (i.e., non-socialistic) culture and traditions. But the word nationalization, once mostly whispered by liberal economists, is now even being tossed around by Lindsey Graham and Alan Greenspan. It’s a clear indication that no one has a better idea.

The Obama White House may come up with euphemisms for nationalization (temporary receivership, anyone?). But whatever it’s called, what will it mean? The reason why the White House has been punting on the new installment of the bank rescue is not that the much-maligned Treasury secretary, Timothy Geithner, is incapable of getting his act together. What’s slowing the works are the huge political questions at stake, many of them with consequences potentially as toxic as the banks’ assets.

Will Obama concede aloud that some of our “too big to fail” banks have, in essence, already failed? If so, what will he do about it? What will it cost? And, most important, who will pay? No one knows the sum of the American banks’ losses, but the economist Nouriel Roubini, who has gotten much right about this crash, puts it at $1.8 trillion. That doesn’t count any defaults still to come on what had been considered “good” mortgages and myriad other debt, whether from auto loans or credit cards.

Americans are right to wonder why there has been scant punishment for the management and boards of bailed-out banks that recklessly sliced and diced all this debt into worthless gambling chips. They are also right to wonder why there is still little transparency in how TARP funds have been spent by these teetering institutions. If a CNBC commentator can stir up a populist dust storm by ranting that Obama’s new mortgage program (priced at $75 billion to $275 billion) is “promoting bad behavior,” imagine the tornado that would greet an even bigger bank bailout on top of the $700 billion already down the TARP drain.

Nationalization would likely mean wiping out the big banks’ managements and shareholders. It’s because that reckoning has mostly been avoided so far that those bankers may be the Americans in the greatest denial of all. Wall Street’s last barons still seem to believe that they can hang on to their old culture by scuttling corporate jets, rejecting bonuses or sounding contrite in public. Ask the former Citigroup wise man Robert Rubin how that strategy worked out.

We are now waiting to learn if Obama’s economic team, much of it drawn from the Wonderful World of Citi and Goldman Sachs, will have the will to make its own former cohort face the truth. But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word — depression — is next on America’s list to avoid.

http://www.nytimes.com/2009/02/22/opinion/22rich.html?_r=1

[youtube=http://www.youtube.com/watch?v=Wnxm4MfV9hE&hl=en&fs=1]

View: Part 2 Part 3

AMY GOODMAN: The House approved an $819 billion stimulus package Wednesday, marking one of the most expensive pieces of legislation ever to move through Congress. Despite an all-out lobbying push by President Obama, the bill passed without a single Republican vote. Eleven Democrats also opposed the measure.

The Los Angeles Times says the package is “the largest attempt since World War II to use the federal budget to redirect the course of the nation’s economy.” The two-year stimulus plan totals $275 billion in tax cuts and nearly $545 billion in domestic spending. It would provide up to $1,000 per year in tax relief for most families, increase funding for alternative energy production, and direct more than $300 billion in aid to states to help rebuild schools, provide healthcare to the poor and reconstruct highways and bridges.

House Republicans argued the bill tilted heavily toward new spending instead of tax cuts and that it would do little to stimulate the economy. This is Georgia Republican Paul Broun.

REP. PAUL BROUN: I see this as a huge leap toward socialism as a nation. It’s creating new government programs, it’s creating new government jobs, that don’t have any sunlight to those programs, to those jobs. It expands programs that are already there. It further—some of the tax relief, I believe and hope the gentlemen will agree with me, actually just furthers through the refundable tax credits a dependency upon government. My friend Star Parker had wrote a book one time that she called Uncle Sam’s Plantation. And what this does is it economically enslaves people. And that’s what we see happening.

AMY GOODMAN: President Obama hailed the passage of the legislation and made no mention of the unanimous Republican opposition. He will now turn his attention to the Senate, where Democrats are scheduled to begin debate on the measure on Monday and the price tag is likely to reach $900 billion.

Hours before yesterday’s House vote, President Obama told a group of about a hundred business leaders that Congress must not delay efforts to restart the economy and put people back to work.

PRESIDENT BARACK OBAMA: The businesses that are shedding jobs to stay afloat, they can’t afford inaction or delay. The workers who are returning home to tell their husbands and wives and children that they no longer have a job and all those who live in fear that their job will be next on the cutting blocks, they need help now. They are looking to Washington for action, bold and swift. And that is why I hope to sign an American recovery and reinvestment plan into law in the next few weeks.

And most of the money that we’re investing as part of this plan will get out the door immediately and go directly to job creation, generating or saving three to four million new jobs. And the vast majority of these jobs will be created in the private sector, because, as these CEOs well know, business, not government, is the engine of growth in this country.

AMY GOODMAN: Obama’s comments come at a time when the economy that is losing more than half a million jobs a month, including more than 65,000 layoffs announced just this week.

William Greider joins us now, the national affairs correspondent for The Nation magazine; the author of several books, including The Soul of Capitalism: Opening Paths to a Moral Economy and One World, Ready or Not: The Manic Logic of Global Capitalism. His forthcoming book is called Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country. He joins us in our firehouse studio.

Welcome to Democracy Now!

WILLIAM GREIDER: Thanks, Amy.

AMY GOODMAN: It’s good to have you here in the studio.

WILLIAM GREIDER: Likewise, yes.

AMY GOODMAN: The state of the economy right now, what President Obama just said, the fact that they’ve pushed through this more than $800 billion economic stimulus package. The House at this point, with—as Boehner, I think, came onto the floor with a—holding his hand up in a big zero, saying the Republicans are not going to give them anything.

WILLIAM GREIDER: The Republicans, it’s very clear, they are staking out a sort of—what they think is a no-lose, hard-right position: “We will be against anything significant this new president is attempting, because we know it’s going to fail, not because it’s Obama’s fault, but because this force, the negative forces bearing down on our economy and the world are overwhelming.” So they think, you know, six months from now they will say, “We told you this was socialism,” “We told you this was wasteful,” etc.

I think they’re wrong on several—I think the President is doing what he said he would do. He’s trying to be bipartisan. And I suspect he will keep doing that, regardless of the Republican position, because he understands that the country is in deep trouble, and people are not interested in another cat-and-dog fight. They want to see something happen. If it doesn’t work, do something more, try something else. But the idea of just standing back and making their ideological speeches about socialism is ridiculous.

AMY GOODMAN: Seems like the person who’s leading the way now, who lost a little support over the last few years but is coming back with a vengeance, is Rush Limbaugh leading the charge.

WILLIAM GREIDER: Is he pounding that drum? Well, he’s welcome to it. I think there’s a long-term political strategy that the President is following, which is good for him, and good for the country maybe, in which he said he’s speaking not to Rush Limbaugh, not to John Boehner and the right-wingers in the Congress; he’s talking to just folks all across the country, including Republicans.

AMY GOODMAN: Now, I’d like you to lay out what the terms of this bill are, what the package are. But then I want to go beyond the Democratic-Republican spectrum—

WILLIAM GREIDER: Yeah, yeah.

AMY GOODMAN: —about what you think needs to happen. What’s in this bill?

WILLIAM GREIDER: A lot of really good stuff that will be stimulative, just because it keeps—either keeps people working or it creates new jobs and begins—only begins, but begins—these deeper reform imperatives the country faces, like energy conservation and conversion, like ecological protection, expanding healthcare for people, especially at the bottom end of the income ladder. In any other season, Amy, it would be quite extraordinary to stand back and see what they’re doing. In our present circumstances, I have to say, it is probably not enough to—

AMY GOODMAN: Well, you’ve said it’s two or three times too small.

WILLIAM GREIDER: Yeah. I mean, you can measure what’s missing now in demand and business activity and lay it alongside this package, and this package looks way inadequate. I think the White House understands that, but they’re not going to triple it. What they are doing is starting a process that will at least, perhaps, slow the hemorrhage. That’s—I’m sure that’s their hope.

There are a bunch of obstacles that I think make it very difficult to get out of this ditch. One of them is scale, the scale of what kind of response you’re—another is the financial system, which, despite the hundreds of billions pumped into banks, is still essentially dysfunctional. And they’re now wrestling at the Treasury Department and the White House with, OK, how do we change the game that Henry Paulson and the Republicans played for six, nine months unsuccessfully?

AMY GOODMAN: And do you expect someone like Timothy Geithner, who—yesterday we had on Independent Senator Bernie Sanders, who is opposed to his confirmation, saying he was part of this massive problem. Do you expect that he would be able to?

WILLIAM GREIDER: Well, I am among those who urged our new president not to appoint him for that very reason. And—

AMY GOODMAN: Did you talk to Obama about that?

WILLIAM GREIDER: No, no. I’m just—in the pages of The Nation—I’m not sure he’s a reader, but perhaps he will become a reader as things get worse. I’ve been writing for some months, the system is not just broken and not just injured; it is collapsed. And as long as the government continues to play putting Humpty Dumpty back together again, I think it will fail. That’s not an ideological statement. It’s just—I think it’s the reality.

And so, I hope, without great confidence, that Larry Summers, the economic adviser, and Tim Geithner and the President decide to take a deep breath, jump over the political barriers and say, “We are taking control of the banking system, temporarily, maybe for a few years. But we have to make this system function for the American economy right now.” And handing them the money and asking them to do the right thing is not sufficient. We know that. It’s not just their excesses; it’s the fact that the banks have a very clear self-interest in not lending, in not beginning investment. They’re hunkering down, trying to save themselves from total failure. Once the government makes that recognition, then it can direct things more forcefully and intelligently.

And I don’t expect them to do that, but I just add this: I hope, I hope that the President is saying to his economic wizards, “OK, we’re going to do your plan, your halfway steps and the many parts to it. But what’s your second plan? When this doesn’t succeed, what do I do then?” because if they don’t do that, they’re going to wind up caught in the same game that Henry Paulson and George Bush were caught in. You try this, you throw some money this way, you throw it that way, nothing happens, and then you come back with a new plan, and so forth.

AMY GOODMAN: Bill Greider, we’re going to come back to this discussion. I want to ask you more about nationalizing the banks. Bill Greider is with us, national affairs correspondent for The Nation magazine. His forthcoming book, Come Home, America. Stay with us.

[break]

AMY GOODMAN: Our guest is Bill Greider. He is with The Nation magazine. His forthcoming book is called Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.

So, you’re on the train yesterday. You bump into Bill Parsons, the—

WILLIAM GREIDER: Richard Parsons.

AMY GOODMAN: Richard Parsons, rather.

WILLIAM GREIDER: You don’t bump into Richard Parsons. He’s—he was the leader of Time Warner. He’s just now been made chairman of the board at Citigroup.

AMY GOODMAN: And you’ve been calling for the nationalizing of banks like Citigroup.

WILLIAM GREIDER: Well, I think they should just get it over with and close Citigroup down, because it’s insolvent. And—

AMY GOODMAN: Did you tell Richard Parsons this on the train?

WILLIAM GREIDER: I didn’t. That would be, first of all, impolite. But secondly, we were in what Amtrak calls the quiet car, where you do not talk. So that’s my excuse for not badgering him.

But you know what he was doing. He witnessed what happened to the three executives of the auto companies when they flew their private jet to Washington with their hands out for money, and he decided, given that Citigroup has now received, what, $45 billion straight up and another $300 billion in guarantees, it would be awkward for him to fly in to his meeting with the President. Obama had a bunch of corporate execs in yesterday to lead cheers for them and get them going. And good for him, right? He’s down with the folks. Of course, it was in the—he’s on the Acela train, which is the fast train.

AMY GOODMAN: Well, I guess the question is, is Citigroup down with the folks? And what has happened to the billions of dollars that have been given to bail out these companies that they are not accounting for? And it’s not just President Bush. It’s not just Henry Paulson. The Democrats joined with the Republicans in supporting this.

WILLIAM GREIDER: Absolutely. This has been, up to now, bipartisan failure, and it continues not to have the crucial feature, which is answering the question: What does the public get for this money? And this sounds unbelievable, but it’s literally true. The government, Treasury and the Federal Reserve pumps this money in and demands almost nothing in return, in terms of a prescribed behavior, guaranteed conduct—we will do this, we will stop doing that, so forth and so on.

So these guys are all going out and—you know, Citigroup was embarrassed just last week, because somebody revealed that they had on order and were about to get a new $50 million executive jet. And that’s why Richard Parsons is on the train this week, because as soon as the public finds that out, they’re thinking, “Oh, no. They’ve done it again!” And it’s just very simple political logic for Washington to say, “We have to exercise control over these institutions, at some level of penetration, to stop this misbehavior, first, and then to make them do some positive things that the country needs right now.” And in the case of Citigroup, this is—

AMY GOODMAN: You say it’s insolvent.

WILLIAM GREIDER: Yeah, that’s not an opinion of mine. I mean, I talk to people who are really serious bank specialists, and they’ve been saying that for many months. It’s the so-called toxic assets in their—and this is not unique to Citigroup—but the toxic assets that build up in a way that you—that the government—if it tried to do this for every one of the largest banks, it would make this stimulus package look like peanuts. It’s huge. It’s maybe a couple of trillion dollars still out there.

I think you can get pretty old-fashioned about this. The bank examiners go in, and they make Citigroup lay it all out. And at some point, they can decide: “This bank is too gone to save. It’s too big to save, and it’s got too much failure already in it. So we will organize its liquidation.”

The other alternative is to nationalize it and begin to deconstruct the bad pieces and build new banks. I mean, to me, this is the exciting prospect. This is boring to a lot of people, but it’s the heart of the matter. If you don’t nationalize it, then you’re simply sort of prettying up, you know, the old roses and hoping that they bloom again.

What government should be doing now, and it’s a long process, is rebuilding the banking and financial system across the entire country so that it serves the economy, serves the society, rather than being these little citadels of high profit and extraordinary salaries. What happened in the last twenty-five years is that everything got concentrated in big guys, including really strong regional banks that got swallowed up by the bigger banks. Thousands of smaller community banks got wiped out. Either they got sold or they closed down, etc. This is a huge project, and we won’t get back to what Americans at large can regard as an equitable and prosperous economy until that structure is rebuilt. Citigroup is not going to do that. Even if you prop it up for ten years, it’s not going to do that.

AMY GOODMAN: What are the forces that would do that?

WILLIAM GREIDER: Politics, actually. I mean, and people around the country. I’ve done a lot of reporting over the years, on the ground, with just people in different parts of this country trying to—as I described them in my earlier book, trying to reinvent capitalism, trying to make it not just humane but socially supportive to industry, small businesses, consumers, workers, etc. They’re terrific people. They’re very smart. A number of them are veterans of Wall Street. They did a few years making high salaries and ripping and running in the markets, and they said, “That’s not what my life is about,” and they went to Oklahoma or California or wherever and started firms, that are investment firms, that operate on very different principles. If I were king, or if I had the President’s ear, I would say, “Get those people into the White House now.” There are thousands of them.

AMY GOODMAN: Can you think of examples?

WILLIAM GREIDER: Well, the names are—there’s a—I just heard from her. I’m going to blank her name, but she’s from Portland or somewhere on the West Coast. She has—I think it’s called 21st Century Investments. Don’t hold me to the names. But she is one of those people, and she just sends out a report every once in a while: “These are the companies we’ve just invested in.” And, of course, the investment standards of those companies—for those companies are the same standards any of us would want to apply. Are they sound ecologically? Do they treat their workers with equity and fairness and include them in the decision making? Are they viable? Do they have a future? Are they making something the country will need?

All I’m getting at is, if we get our heads out of Washington for a minute and look across the country, there is enormous potential for reinvention and innovation, and not just in that area but in others. And that’s what I’m hoping this president will get to.

AMY GOODMAN: Bill Greider, I want to ask you what role economic globalization played in all of this. Right now, at the World Economic Forum, Wen Jiabao, the Chinese premier, said Beijing blames the United States for the economic breakdown, saying, “inappropriate macroeconomic policies […] and […] unsustainable model of development characterized by prolonged low savings and high consumption; […the] blind pursuit of profit; […] and the failure of financial supervision” all contributed.

WILLIAM GREIDER: Wow! That’s strong. That’s very.

AMY GOODMAN: And China is the largest holder of US government debt.

WILLIAM GREIDER: Did he—China is our banker. I mean that literally. China, having accumulated huge trade surpluses and capital, has been the lender. It’s not the only one—there are others—but it’s the lead lender that has kept Americans going in the illusion that you could, year after year, borrow and spend more than you produced. Economics doesn’t allow that, not forever—for a while maybe, but not forever.

And so, we’re in a position now where China—we have to get a bailout from China and Japan, the Arab oil states and some others to keep us going as we work through this huge global recession. And I think the deal that’s possible is that the US can say to those creditors, “OK, give us the loans. We’ll go a bit deeper in the hole of debt. But we—because we’re such good consumers, we will be the lead engine that pulls the world out of this recession. In exchange, we are telling you now that the trade system, the global trading system, must be reformed and balanced. We can’t go on like this. Ultimately, you can’t go on like this.”

And by that, I mean bringing down the trade deficits, which have rung up more than $5 trillion in debt over the last fifteen years; imposing some rules on US multinationals, so that they can’t just roam the world as free riders, moving jobs and production wherever they choose without regard to the home country. I mean, there’s a long list of reforms, which I’ve written about and I write about in this new book. My point is, this is a moment. If the Obama administration has the nerve to go for a global compact that doesn’t just help a recovery but actually rearranges the world in fundamental terms—I don’t know if they’re big enough to do that—

AMY GOODMAN: And those terms are…?

WILLIAM GREIDER: Well, you’d start with balanced trade, not perfectly, but—and you’d start with a new global institution for finance that represents both, not just the advanced countries with strong economies, but the developing countries, and balances their interests through currency exchange and other—it would begin to build a structure of global rights for workers and communities, which is, of course, absent, utterly now. And by that, I mean a way to mediate between the high-wage workers in countries like ours, in Europe, Japan, and those folks at the bottom who are in the sweatshops.

I mean, the reality of our time, not so well understood, is that it’s very much like the English Industrial Revolution. The workers are exploited on both ends. If you think of the—you know, William Blake, the poet, wrote about the “dark Satanic mills” in England in 1800. The skilled craft workers were thrown out of their jobs, and they were replaced with children. And the children, of course, were completely defenseless and exploited. But so were those other workers who had been cut out of the prosperity that their country was achieving. That’s a small picture of what is happening globally now. And I’m among those who have been railing at this for twenty years, actually, without much effect.

But now we’re in a crisis that maybe will awaken the governing elites to the reality that they have to confront this and build labor rights and other protections into the system, or we’ll go right back into that hole.

AMY GOODMAN: It’s interesting you talk about building labor rights, because last fall it was reported Bank of America received something like, what was it, $25 billion from the government. Three days later, according to the Huffington Post, Bank of America’s top executives were busy. Were they trying to right the sinking ship? No, they were coordinating a conference call to organize opposition to the Employee Free Choice Act—

WILLIAM GREIDER: Absolutely.

AMY GOODMAN: —the top legislative priority of organized labor unions.

WILLIAM GREIDER: Of course, yes. I was at a forum last night in New York City and talked. And a woman and her husband came up afterwards, who were employees of IBM, and they were saying, you know, IBM is at the White House meeting with the President and doing good talk about the economy and all that, and meanwhile is shutting down jobs and moving them to Asia.

So what’s the nature of this game? Are we trying now to revive the American economy for everybody? Or are we simply facilitating the process that’s already underway, which is that the US multinationals, for the last twenty-five years, have systematically gutted high value-added jobs, the ones with the good wages, when they could, when they needed to, and gone to cheap labor elsewhere? And—

AMY GOODMAN: Do you see—

WILLIAM GREIDER: Sorry.

AMY GOODMAN: Do you see the system—right now, the World Economic Forum is going on at Davos.

WILLIAM GREIDER: Yeah.

AMY GOODMAN: The World Social Forum is going on in Brazil. Do you see going back to 1999, when you had those thousands of people in the streets of Seattle, with Bill Clinton coming in on a plane in the middle of the night, in the teargas, who had pushed so hard for so-called free trade—

WILLIAM GREIDER: Yeah.

AMY GOODMAN: —really twisted the arms of Congress members, when NAFTA was clearly going down, to force it all to happen?

WILLIAM GREIDER: We’re not there yet. I think more likely, to be blunt, is that Seattle will look like an organized and civil appeal of popular distress compared to what I think we’re going to see. And by that, I mean you can’t do this to people year after year—that is, upturn their lives, take away what they thought they had earned, and so forth and so on, without provoking rather intense political reactions.

We’re just, just beginning to see a few bubbles like that around this country. They’re rioting in eastern Europe and some places in Asia. I don’t say we’re going to have riots, but I think people will—and I hope for this—people, out of their own distress and anger, will organize their own politics, and they will make themselves seen and heard around this country. And we’ve seen some—sit-down strike in Chicago, which actually succeeded in getting the workers their rights. We’re seeing the beginnings of a foreclosure, anti-, stop the foreclosure movement. The Nation has a terrific piece this week by Ben Ehrenreich describing that. That’s what happened in the ’30s, of course, that the people did not finally wait for Washington to do the right thing and solve the problem. They recognized that that wasn’t in the cards, and they would take their action, as they could, on the ground, in the workplace, elsewhere, politics.

This is—this gets messy really fast. And some of it gets ugly. But if people understand their own power as citizens and act on it—takes some courage—that will be the core of this politics we’re in.

AMY GOODMAN: Bill Greider, I want to thank you for being with us. He is national affairs correspondent for The Nation magazine. Forthcoming book, Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.

Paul Krugman’s Op-Ed article in the February 1, 2009 New York Times, entitled “Bailouts for Bunglers,” is the latest in a series of major articles where prominent, mainstream economists have advocated nationalization or government takeover of the failed U.S. banking system.

For example, last week, (Janurary 26, 2009) CNN reported that Joseph Stiglitz, the former economic advisor to President Bill Clinton and current Columbia University professor advocated government takeover of the banks. Stiglitz asserted that with the banks owned by and under government control they would be able to deal with the bad assets more efficiently, and he added that nationalizing the banks would enable then to operate more in the national interests. But he also said that once the banks have recovered and stood on a firm financial basis, the banks should revert back into private hands.

In addition, William Greider, currently the National Affairs Correspondent for The Nation magazine and a former Rolling Stone and Washington Post editor, has recently appeared on Democracy Now! and on the PBS Bill Moyers Journal and has written an article, “The Crisis Is Global” for The Nation (January 15, 2009), where he advocates a government takeover of the banks. Greider states, “Obama and his advisers are eager to get another $350 billion in bailout funds, but they have remained silent on whether this will finance a government takeover of the system. Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return.”

Moreover, Rolfe Winkler, a Chartered Financial Analyst, states in an article entitled, A Bad Bank Is a Very Bad Idea, published in the New York Daily News on February 2, 2009, that “Marking down assets means losses have to be recognized. A better solution than forcing them onto taxpayers would be to nationalize the banks outright, wiping out shareholders and forcing bank creditors to absorb their share of losses.”

Paul Krugman, in his article reproduced below, echoes basically the same refrain when he says, “If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?”

But, it must be asked, if the banks can be run more efficiently by the government than by private owners, why not keep the banks as publicly owned, nationalized enterprises, where they would be mandated to operate in the interests of everyone and not merely in the interests of rich bank owners?

Many labor and social justice activists today also believe that the banks should be nationalized without compensation as well as have every bank relinquish all misused public funds. Then the banks can be operated in the public interest so that the small depositors’ savings are protected and loans could only be made on a socially planned and rational basis, not for the private profit of a fabulously wealthy few where everyone else’s well-being is jeopardized.

Referenced Articles

Paul Krugman, Bailouts for Bunglers, The New York Times
http://www.nytimes.com/2009/02/02/opinion/02krugman.html

Joseph E. Stiglitz, How to rescue the bank bailout, CNN.com
http://www.cnn.com/2009/POLITICS/01/26/stiglitz.finance.crisis/

William Greider, The Crisis is Global, The Nation
http://www.thenation.com/doc/20090202/greider

Rolfe Winkler A Bad Bank Is a Very Bad Idea, New York Daily News
http://www.nydailynews.com/opinions/2009/02/02/2009-02-02_a_bad_bank_is_a_very_bad_idea.html

By DAVID E. SANGER

WASHINGTON — Only five days into the Obama presidency, members of the new administration and Democratic leaders in Congress are already dancing around one of the most politically delicate questions about the financial bailout: Is the president prepared to nationalize a huge swath of the nation’s banking system?

Privately, most members of the Obama economic team concede that the rapid deterioration of the country’s biggest banks, notably Bank of America and Citigroup, is bound to require far larger investments of taxpayer money, atop the more than $300 billion of taxpayer money already poured into those two financial institutions and hundreds of others.

But if hundreds of billions of dollars of new investment is needed to shore up those banks, and perhaps their competitors, what do taxpayers get in return? And how do the risks escalate as government’s role expands from a few bailouts to control over a vast portion of the financial sector of the world’s largest economy?

The Obama administration is making only glancing references to those questions. In an interview Sunday on “This Week” on ABC, the House speaker, Nancy Pelosi, alluded to internal debate when she was asked whether nationalization, or partial nationalization, of the largest banks was a good idea.

“Well, whatever you want to call it,” said Ms. Pelosi, Democrat of California. “If we are strengthening them, then the American people should get some of the upside of that strengthening. Some people call that nationalization.

“I’m not talking about total ownership,” she quickly cautioned — stopping herself by posing a question: “Would we have ever thought we would see the day when we’d be using that terminology? ‘Nationalization of the banks?’ ”

So far, President Obama’s top aides have steered clear of the word entirely, and they are still actively discussing other alternatives, including creating a “bad bank” that would nationalize the worst nonperforming loans by taking them off the hands of financial institutions without actually taking ownership of the banks. Others talk of de facto nationalization, in which the government owns a sizeable chunk of the banks but not a majority, with all that connotes.

That has already happened; taxpayers are now the biggest shareholders in Bank of America, with about 6 percent of the stock, and in Citigroup, with 7.8 percent. But the government’s influence is far larger than those numbers suggest, because it has guaranteed to absorb the losses of some of the two banks’ most toxic assets, a figure that could run into the hundreds of billions of dollars.

Many believe this form of hybrid ownership — part government, part private, with the responsibilities of ownership unclear — will not prove workable.

“The case for full nationalization is far stronger now than it was a few months ago,” said Adam S. Posen, the deputy director of the Peterson Institute for International Economics. “If you don’t own the majority, you don’t get to fire the management, to wipe out the shareholders, to declare that you are just going to take the losses and start over. It’s the mistake the Japanese made in the ’90s.”

“I would guess that sometime in the next few weeks, President Obama and Tim Geithner,” he said, referring to the nominee for Treasury secretary, “will have to come out and say, ‘It’s much worse than we thought,’ and just bite the bullet.”

So far the Obama administration has signaled that it is trying to avoid that day, and members of its economic team — among them Mr. Geithner and the president’s top economic adviser, Lawrence H. Summers — made the case during the Asian financial crisis in the 1990s that governments make lousy bank managers.

Indeed, the risks of nationalization they warned about then apply equally to the United States now. The first is that nationalization can prove contagious. If the Obama administration took over Bank of America and Citigroup, two of the largest banks in the United States, private investors could decide to flee from the likes of JPMorgan Chase and Wells Fargo, or other major banks, fearing they could be next.

Moreover, Mr. Obama’s advisers say they are acutely aware that if the government is perceived as running the banks, the administration would come under enormous political pressure to halt foreclosures or lend money to ailing projects in cities or states with powerful constituencies, which could imperil the effort to steer the banks away from the cliff.

“The nightmare scenarios are endless,” one of the administration’s senior officials said.

The argument in favor of nationalization, even a brief nationalization of a few months or years, is straightforward: It might be the only way to pull America’s largest financial institutions out of the downward spiral that makes it enormously difficult to raise the capital they need to keep operating.

Right now, many banks are reluctant to write off their bad debts, and absorb huge losses, unless they can first raise enough capital to cushion the blow. But they cannot attract that capital without first purging their balance sheets of the toxic assets. Japan’s experience proved the dangers of that downward swirl; the economy stagnated, new lending ground to a halt and the country’s diplomatic clout shrank with its balance sheets.

Nationalization could pull the banks out of that dive, at least temporarily, as the government injected capital, hired new managers and ordered a restart to lending. But some Republicans who bit their tongues when President George W. Bush ordered huge interventions in the market would charge that Mr. Obama was steering America toward socialism.

Nationalization, said Charles Geisst, a financial historian at Manhattan College “is just not a term in the American vocabulary.”

“We think of it,” he continued, “as something foreigners do to us, not something we do.”

It is also something foreigners do to themselves: the British have recently taken a majority stake in the Royal Bank of Scotland.

Some of Mr. Obama’s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay — a political reality in the current environment?

Another option is for the government to buy the banks’ most toxic assets either through a giant fund, or, more likely, a federally supported bad bank designed to buy up troubled investments. But in that case, taxpayers might well be the losers: They would have all of the banks’ worst assets and none of their performing loans. And unless a deal is worked out to take a larger share of the banks whose bad loans are shuffled off to the government, the taxpayers would not have the chance to benefit by selling the shares back to private investors.

Moreover, cleaning up the banks’ bad assets, without extracting a heavy price for the bank managers, shareholders and their lenders, is exactly what Mr. Summers and Mr. Geithner warned against during the Asian financial crisis.

“We told the Asians that they had to be willing to let banks and companies fail,” said Jeffrey Garten, a professor at the Yale School of Management and a top official in the Clinton administration. “We warned that there was great moral hazard if governments just bailed them out.”

“And now,” he said, “we are doing the polar opposite of our advice.”