Socialism

I think the price is too high to just let the markets do what they will do. I think there's value to nationalizing the banks, insomuch as, it gives the taxpayers a chance at some return on their investment. You can't simply let Citigroup fail. It has $1.97 trillion in assets. The FDIC insures most of those assets, which means the taxpayer is on the hook anyway, since currently the FDIC only has $40 billion in reserve. If the government buys the company, it can hold on while the market settles out, the good debt can be separated from the bad debt, and the assets can be sold. Sure, there's some chance it won't be profitable, but the losses will be far worse if the banks are just allowed to collapse, which would in turn bring down every major business in the US, from Ford to Intel and everything inbetween.

The government can't sit idly by and watch us revert to the barter system. They couldn't deal with the crisis it would create. While I don't agree with everything this administration is doing, they didn't make this mess. And, no, I'm not necessarily blaming the guy before him, either. This is where we are because ever since Reagan was president, banking regulations have been taboo in the US. It's been republican presidents and democrats. It's been a republican congress and democrats. The blame game gets us nowhere. There is some value in understanding, regardless of what we can or cannot do about it. Consumer debt is a huge part of the problem and that means blaming you and me. The reality can't be simplified down into a bumpersticker.

If anyone wants to understand the crisis, NPR has three great shows on the subject entitled "the giant pool of money", "Another scary show about the economy" and "Bad Bank" available via stream or podcast at This American Life. No partisan BS, just a thorough explanation of how bad we're in it, why, and what options are there to getting out. No matter what, this isn't going to be easy, cheap or painless.

Endurance - If you let it collapse you're saving everyone money and creating opportunity. As it now stands the government has to pay off the toxic loans and the insurance on the toxic loans. If you allow the loans to default you only have to pay off the insurance on the toxic loans. That way you're only paying for half the damage and we're talking billions here. Everything that can default to a zero cost should be allowed to do so. As long as the toxic elements exist the problem will never go away.

You're also assuming that there aren't enough resources to pick up the pieces and start over. If GM falls apart some private investor would scoop up the Bowling Green Kentucky Corvette Plant and start making cars for a lower cost than GM did before. Everything will revert to a lower sensible value to the point where normal people like you and I can get invested and become wealthy.

The problem with what you're suggesting is that it does not fix the problem. It just makes the inevitable crash even worse. It's going to collapse and when it does it'll be a total implosion. It's better to manage a rapid collapse and rapid reconstruction than just put it off for as long as possible.

I have been listening that last few months to economists and "experts", politicos and regular people who I trust are smart. Letting the system fix itself and adjust naturally, really is the right way to go. There are some things that the government can help with, like jobs creation, retraining programs or even social programs to keep people from being out on the street while this adjustment happens.
The thing is, I believe that many of the problems started when regulation on the banking industry happened and also when everyone in the country saw that the "American Dream" was their RIGHT and it was available without having to wait.
Your housing cost should be about 30% of your income, whether it be rent or morgage. A bos driver should have no way of living in an $800k house! People should have to work for something they acheive...rent, live with parents, save to acheive that house. People need to learn to save to get that big screen TV instead of paying for it with credit. If houses weren't being made (by cookie cutters?) and weren't all that plentiful, then we would go to a "supply and demand" type of thing, which is where a free economy works best. Joe the plumber wouldn't have had to get a huge credit line to expand in order to jump into that contract to plumb those cookie cutter houses and now wouldn't be facing bankruptcy when the cookie cutter houses stopped being built. Joe's workforce wouldn't be having to be laid off because there was no work and those workers wouldn't be facing foreclosure on the houses that they bought....instead, Joe's business would have probably grown in a more healthy and natural way. His workers wouldn't have jumped on the housing band wagon and bought houses they couldn't of afforded, but would have gone into older neighborhoods and bought what was there and redone it themselves.
That kind of cuts it into black and white, and I'll admit there are grey areas to all of this, but the point is: if we hadn't have lived on credit, we wouldn't have been facing this now. We are a group of more prepared and aware people, but honestly, does the rest of the country not understand that if you can't afford it, don't buy it? Business and banking will have to adjust to this same principle, it's natural and the financial world will be much more stable because of having gone through it the right way.

Set, I agree, a permanent nationalization of the banks is a bad idea. It should be done as a stopgap measure to avert a greater crisis. We're not the independent America of the 1800s. The entitlements created under FDR have become some people's only safety net. How many people's folks could get by without medicare or social security. Both of those are, by strict definition, socialist programs. I'm neither for nor against them, but it's not realistic to cut those programs off right now, with no warning.

In the same way, why punish those few Americans who have savings? If you let Chase, Citigroup, or Bank of America fail, how many Americans will lose their savings? How many will lose the credit card that provides the only means for them to pay for that car repair so they can get to work?

Citigroup has roughly $1.97 trillion in assets and $1.97 trillion in liabilities. It's called a balance sheet. The problem is that they've run out of reserves, twice now, where their liabilities exceeded their assets and the government has had to step in. The fact is that they can't keep jumping in and out of companies like this. I would not be surprised if some Friday evening in the not too distant future, the government announce that they are taking over a list of banks and on Monday morning, the bank opens as usual, only under new and temporary owners. Eventually the assets and liabilities will be sold. Some banks will get bought out by bigger fish, others will be piecemealed. The government will have filtered through the books and will retain the bad debt to get it out of the market. Some banks will lose the government hundreds of billions, others will yield moderate profits. However, without intervention, it's a disaster that would make the great depression look like a speed bump.

I don't like the idea either, but the more you learn about the crisis, the more you realize that without a functioning banking system, there are no jobs.