Otto: Don’t call me stupid.
Wanda: Oh, right! To call you stupid would be an insult to stupid people! I’ve known sheep that could outwit you. I’ve worn dresses with higher IQs. But you think you’re an intellectual, don’t you, ape?
Otto: Apes don’t read philosophy.
Wanda: Yes they do, Otto. They just don’t understand it. Now let me correct you on a couple of things, OK? Aristotle was not Belgian. The central message of Buddhism is not "Every man for himself." And the London Underground is not a political movement. Those are all mistakes, Otto. I looked them up.
— A Fish Called Wanda (1988)
So many things in life are about language. The current credit crisis is no different, as the furor over bank "nationalization" helps demonstrate.
For all sorts of reasons, some knee-jerk, some nonsensical, and some entirely rational, the word "nationalization" has roughly the same effect on the average American as does the word "stupid" on Otto in the movie A Fish Called Wanda. The typical American could be dangling by a finger from a hot-air balloon and yet at the sound of the word nationalization they’ll go off in a red-eyed rage about evil socialists and the end of America.
The following comment on a recent Reuters column about bank nationalization is fairly typical of the don’t-say-nationalization sort of rant:
Nationalization of our banks, or any part of our system will be the end of the United States as we know it. Obama and his sociallistic followers,(Mrs. O, Emanuell,Geithner,Pelosi and the rest of the fools) want socialism. We can then be good friends with Hugo Chavez and the like. Yes, we have major problems. WE created these problems. WE should be able to fix them. The first thing to do is get the above socialists out of our country Kick the incapable Larry Summers out and let a man who has proven he save our banking system, Mr. P. Volker take over. And of course put the James Diamonds etal in jail
The writer (his spelling and naming issues aside) has some perfectly decent points, of course. Nationalization of U.S. banks in perpetuity would put us in some horrible company, the sort of places that are usually ones Americans are more fond of invading than emulating.
No-one I know, however, is proposing nationalizing U.S. banks in perpetuity any more than we do the same to insolvent banks when the FDIC declares them failed. What happens instead, of course, is that assets are rapidly transferred to solvent institutions, and most depositors don’t even notice that, however briefly, the bank was "nationalized".
Something similar would happen in a nationalization with Citi and its like, albeit on a much, much larger and grander and more complex scale. Granted, the banks wouldn’t flip from owner to owner over a weekend — it might take six months or more — but nationalization would be, by design, a brief phase in the process of going from insolvent bank to re-privatized solvent bank. Thinking that way, some have even suggested calling bank nationalization "pre-privatization" instead, as a valiant effort to get people to stop the Otto-like fixation on the word "nationalization".
The frustrating thing is that, if it were explained properly, most Americans would likely be demanding nationalization/pre-privatization. Instead of pouring money into a bottomless pit of bank liabilities and toxic assets, all the while wondering when it will end and how much it will cost and for how much money incumbent bank executives will screw them over along the way, we’d have a process with a beginning, a middle and an end. Good assets could be sold into solvent institutions; bad assets would be left with an aggregator and/or existing shareholders. Shareholders would be wiped out. Financial life would go on, with new banks, ideally none of which were still too big to fail. And, most importantly, it would be something, pace the scaled-up FDIC-esque process above, the U.S. actually does regularly, speedily and reasonably well.
So, is nationalization wonderful? Of course not. It’s awful and wildly maddening in a capitalist economy. But is it better than the never-ending bailout? Yes. And liking it doesn’t mean anyone’s being called stupid or a socialist.