Why Nationalization of the Banks is a Bad Idea
In our march towards European style socialism, it seems that everyone in Washington, Democrat and Republican, believes that the nationalization of the banks is not only inevitable but to many, desirable. Many Americans seem to accept the idea that because of the economic mess in which we find ourselves, it is alright for the government to take actions that are not only contrary to the constitutional republic the founders envisioned but would have been unthinkable not to many years ago. The problem is as the Obama administration rushes to, as Mr. Emmanuel said, not waste this crisis, few are looking at all the implications of the nationalization of industries, banks in particular.
The first and most obvious is that fact that the government will have access to all our financial records. Now you may say that they do already and to some degree that is true but currently there are limits. If the government wants your records they need a good reason and to get them it usually involves law enforcement, a judge or the IRS. If the banks are nationalized government employees will have access to our financial records as a matter of course. There are two critical areas of privacy we once took for granted. One was doctor-patient confidentiality and the privacy of our medical records. That is disappearing under provisions found in the stimulus bill. The second is the privacy of our finances. The erosion of that sphere of privacy has been disappearing since the adoption of the income tax. Now any vestiges of our financial privacy will disappear. If our finances and records are under the control of the government, we lose a very important safeguard of our freedom. The day when our taxes are taken directly from our bank accounts cannot be far away. If we criticize the government, could we find our accounts frozen or subject to convenient bureaucratic error? The IRS has already been used thus, will the banks be next? Finally, think of this. For seventy years we have dutifully sent in payments to the government for our retirement, known as Social Security. Where is all that money? It is gone. If the government is in charge of our bank accounts, money markets and even investment accounts, do you think for a moment that replacing all our real assets with IOUs will not be a real temptation? History does not inspire confidence.
Now consider the fact that if the government owns the business, in this case the banks, the rules, regulations and policies of the business will no longer consider market forces or reflect common sense but will be driven by ideology. It is the desire to survive and make a profit in the cutthroat world of business competition that makes businesses innovative and efficient. Remove competition and the need for profit and you get...government. That is why all these bailouts are a horrible idea. They subsidize failure by replacing losses due to poor business practices with taxpayer money. It removes the incentive for business to make the hard decisions necessary to turn themselves around and become profitable again. It is just like welfare. Give a person enough money to live “comfortably” without working or subsidize destructive behavior and there is no incentive to improve or work.
If business decisions are made based on ideology as opposed to market forces and profits, the business can engage in practices that would be destructive to a for profit entity. For example, if the government decided that every person should own a car and it controls the banks, it will choose to make loans to people that are high risk in addition to normally qualifying people. What happenes when people who cannot afford a new car get a loan for one and can’t pay? The bank, in this case, the taxpayer, is on the hook for it. Soon there is a glut of late model used cars that have been repossessed but because the government desires people to own cars, they will subsidize the people who have failed to keep up payments or couldn’t really afford them to begin with. Now the taxpayer is not only on the hook for the bad loans but is forced to bail out the delinquent car owners. Hmm, sound familiar? That is how we got into the housing mess and how we are dealing with it.
Now, besides the policies and rules these government run entities will be guided by, consider how they will be run and by whom. Certainly, those who run the banks will no longer be receiving million dollar bonuses or flying on corporate jets to fancy retreats. Perhaps all banks will have executive pay limited to half a million dollars or less. The thing is this, and this is basic human nature, which socialism of all stripes tries to ignore. People who have talent, people who are innovate and motivated, people who are successful for these reasons and others expect to compensated for their efforts. If you put a ceiling on that success one of two things will happen-they will stop working as hard or they will move to a field where their potential remains unlimited. That means the people running the banks will do so with all the efficiency and innovation of every other government bureaucracy. In the middle and lower levels, the banks will be staffed by employees that belong to a government union which means they will be sympathetic to the progressive politicians to whom they owe their employment. Could that color their handling of accounts, doing favors for politically like minded and connected people and making it hard for people labeled as part of the opposition? Don’t think so? Consider how the IRS handles cases like the current treasury secretary, Charlie Rangel and Tom Daschle and how they would handle your “mistake”. Now put that culture in charge of your bank account, loan approval process or even easy access to your money.
Finally, consider how well the government accounts for its own money. Enough said. The market works because every business and individual in it needs to deal with the consequences of their actions as it utilizes limited time and resources. Wrong choices lead to loss, good choices and innovation lead to the creation of wealth. If the banks were left on their own, they would find a way to reverse their losses and those that didn’t would go under. At the other end of a difficult transition, the banks that survived would be stronger and better. Government, because of its size, its ability to coerce consumers to support it, and its ability to create money, can ignore the basic rules of economics longer than an individual or a business. Longer, but not forever. In this case the old saying is true. The bigger they come, the harder they fall. We have used the power of government to keep large entities from falling, merely delaying the inevitable. If the government continues to gobble up sick entities, it will only lead to a more severe illness and the government is sick enough as it is. We cannot continue to ignore common sense, human nature and basic economic reality and with the speed with which we are running away from all three, a very bad fall is coming more quickly than we realize.
The first and most obvious is that fact that the government will have access to all our financial records. Now you may say that they do already and to some degree that is true but currently there are limits. If the government wants your records they need a good reason and to get them it usually involves law enforcement, a judge or the IRS. If the banks are nationalized government employees will have access to our financial records as a matter of course. There are two critical areas of privacy we once took for granted. One was doctor-patient confidentiality and the privacy of our medical records. That is disappearing under provisions found in the stimulus bill. The second is the privacy of our finances. The erosion of that sphere of privacy has been disappearing since the adoption of the income tax. Now any vestiges of our financial privacy will disappear. If our finances and records are under the control of the government, we lose a very important safeguard of our freedom. The day when our taxes are taken directly from our bank accounts cannot be far away. If we criticize the government, could we find our accounts frozen or subject to convenient bureaucratic error? The IRS has already been used thus, will the banks be next? Finally, think of this. For seventy years we have dutifully sent in payments to the government for our retirement, known as Social Security. Where is all that money? It is gone. If the government is in charge of our bank accounts, money markets and even investment accounts, do you think for a moment that replacing all our real assets with IOUs will not be a real temptation? History does not inspire confidence.
Now consider the fact that if the government owns the business, in this case the banks, the rules, regulations and policies of the business will no longer consider market forces or reflect common sense but will be driven by ideology. It is the desire to survive and make a profit in the cutthroat world of business competition that makes businesses innovative and efficient. Remove competition and the need for profit and you get...government. That is why all these bailouts are a horrible idea. They subsidize failure by replacing losses due to poor business practices with taxpayer money. It removes the incentive for business to make the hard decisions necessary to turn themselves around and become profitable again. It is just like welfare. Give a person enough money to live “comfortably” without working or subsidize destructive behavior and there is no incentive to improve or work.
If business decisions are made based on ideology as opposed to market forces and profits, the business can engage in practices that would be destructive to a for profit entity. For example, if the government decided that every person should own a car and it controls the banks, it will choose to make loans to people that are high risk in addition to normally qualifying people. What happenes when people who cannot afford a new car get a loan for one and can’t pay? The bank, in this case, the taxpayer, is on the hook for it. Soon there is a glut of late model used cars that have been repossessed but because the government desires people to own cars, they will subsidize the people who have failed to keep up payments or couldn’t really afford them to begin with. Now the taxpayer is not only on the hook for the bad loans but is forced to bail out the delinquent car owners. Hmm, sound familiar? That is how we got into the housing mess and how we are dealing with it.
Now, besides the policies and rules these government run entities will be guided by, consider how they will be run and by whom. Certainly, those who run the banks will no longer be receiving million dollar bonuses or flying on corporate jets to fancy retreats. Perhaps all banks will have executive pay limited to half a million dollars or less. The thing is this, and this is basic human nature, which socialism of all stripes tries to ignore. People who have talent, people who are innovate and motivated, people who are successful for these reasons and others expect to compensated for their efforts. If you put a ceiling on that success one of two things will happen-they will stop working as hard or they will move to a field where their potential remains unlimited. That means the people running the banks will do so with all the efficiency and innovation of every other government bureaucracy. In the middle and lower levels, the banks will be staffed by employees that belong to a government union which means they will be sympathetic to the progressive politicians to whom they owe their employment. Could that color their handling of accounts, doing favors for politically like minded and connected people and making it hard for people labeled as part of the opposition? Don’t think so? Consider how the IRS handles cases like the current treasury secretary, Charlie Rangel and Tom Daschle and how they would handle your “mistake”. Now put that culture in charge of your bank account, loan approval process or even easy access to your money.
Finally, consider how well the government accounts for its own money. Enough said. The market works because every business and individual in it needs to deal with the consequences of their actions as it utilizes limited time and resources. Wrong choices lead to loss, good choices and innovation lead to the creation of wealth. If the banks were left on their own, they would find a way to reverse their losses and those that didn’t would go under. At the other end of a difficult transition, the banks that survived would be stronger and better. Government, because of its size, its ability to coerce consumers to support it, and its ability to create money, can ignore the basic rules of economics longer than an individual or a business. Longer, but not forever. In this case the old saying is true. The bigger they come, the harder they fall. We have used the power of government to keep large entities from falling, merely delaying the inevitable. If the government continues to gobble up sick entities, it will only lead to a more severe illness and the government is sick enough as it is. We cannot continue to ignore common sense, human nature and basic economic reality and with the speed with which we are running away from all three, a very bad fall is coming more quickly than we realize.
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