Federal Reserve Chief Ben Bernanke is on a roll this week.
First, as Eric Majeski pointed out, Bernanke boosted morale by forecasting that we might soon turn a corner in the recession. (You Go, Ben-Girl!)
Now, in a congressional hearing held yesterday, he brought a (skeptical?) sigh of relief to the financial industry, reiterating that there are no plans to nationalize banks… in a way that would eliminate bank shareholders.
It might just be semantics (or the way words sound when they emerge from his forest-like beard), but I think this issue deserves a second look.
Yes, I understand. If “troubled” banks are nationalized, it will discourage private investors from investing their dollars in the banks, leaving us taxpayers with the tab.
Nationalization of banks would mean current shareholders in these banks would be wiped out, and that, it seems, must be avoided at all costs. Yet we must also somehow avoid stiffing us taxpayers with the bill.
As Naomi Klein noted in an interview with Matthew Rothschild:
“Britain’s Gordon Brown negotiated a deal to purchase equity in exchange for a capital injection. He got a 12% return, a seat on the board, voting rights, and he got guarantees that they would use the capital injection to lend money to small businesses and homeowners.”
Remember the deal that former Treasury head Henry Paulson’s struck with the banks? And remember the terms of that deal: We get a 5 percent return, no voting rights, no seats on the board, and no guarantees about how our money would be spent. I think the better question is: “On whose terms was that deal made, anyway?”
What I don’t understand is how bank shareholders are any different than you or me? We little people face these things every day. We invest in a scratch-off or a college education or a house, and we hope things go our way, but if they don’t, we pick ourselves up and move on.
What’s the difference here? Could it be that bank investors are also investors in political capital, and that political capitol is now putting its shareholders before the interests of the people who voted for them?
