Tuesday, February 10, 2009

Sec. Geithner getting raked across the coals

CNBC anchors are having their fun tearing down a government official. And it is true that Sec. Geithner in his statements this morning still provides no plan to fix America's banking problems. However, my reading of the situation tells me there is a real good reason the Secretary has no plan: he won't consider the only viable one -- full, honest, and proud nationalization.

America's private banking system has no credibility: it doesn't lead to growth but contraction; it causes rather than solves social problems; and it is mired in terrible public relations. The banks' troubles are bringing down the whole country's operation, from consumers, to companies, to the Treasury. To save the whole, the banks must be made over. New institutions must be created. The only way to do this, that I see, is for the government to seize the banks' assets, let the bad banks fail, let the good ones struggle to maintain their existence, and put our knowledge toward new ideas rather than bailing out old ones.

Finally, you can't simply 'put more liquidity in the market.' The problem is not a lack of money, but a lack of money movement. Liquidity is a multidimensional construct, not a unilateral one. The confidence to lend and borrow depends on credible laws, credible organizations, credible people. The existing banks don't have any of this. New institutions are needed. In the new world of American capitalism, credibility is not announced, it is socially decided.

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