Greenspan backs bank nationalisation

So the free market guru and admirer of Ayn Rand now supports bank nationalisation. Obama however the new darling of the liberal left in the US stands firm against taking this course. The world is really turning upside down.


Financial Times - February 18, 2009
Greenspan backs bank nationalisation
By Krishna Guha and Edward Luce in WashingtonThe US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman has told the Financial Times.In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”Mr Greenspan’s comments capped a frenetic day in which policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”Speaking to the FT ahead of his speech to the Economic Club of New York last night, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”But he cautioned that holders of senior debt - bonds that would be paid off before other claims - might have to be protected even in the event of nationalisation.”You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks,” he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt.”Mr Greenspan’s comments came as President Barack Obama signed into law the $787bn fiscal stimulus in Denver, Colorado. Mr Obama will announce on Wednesday a $50bn programme for home foreclosure relief in Phoenix, Arizona. Meanwhile, the White House was working last night on the latest phase of the bailout for two of the big three US carmakers.In his speech after signing the stimulus, which he called the “most sweeping recovery package in our history”, Mr Obama set out a vertiginous timetable of federal decisions in the coming weeks that included fixing the US banking system, submission next week of the 2009 budget and a bipartisan White House meeting to address longer-term fiscal discipline.“We need to end a culture where we ignore problems until they become full-blown crises,” said Mr Obama. “Today does not mark the end of our economic troubles … but it does mark the beginning of the end.”