Nationalization, By Any Other Name

The word "nationalization" has put fear and trembling into the American marketplace, and understandably so. It rings of socialism, of the European model, of the Third-Way progressive compromise. It's the death knell of the American form of free-market capitalism that is the foundational pillar beneath our symbolic hegemony over the rest of the world.

Apparently our current administration and its Congress don't believe this for a minute, because they haven't yet caught onto the fact that the word needs more than just denial; it needs replacement.

So far, they have been very quick to grasp the emotional impact behind words, to wit their choice of name for their stimulus package, The American Recovery and Reinvestment Act of 2009. We all know that this latest effort is really 'The Wild Attempt to Save Our Butts From Depression Act of 2009', but to use such blatant language would be ... well, depressing. Our savvy legislators know this, so they found a nicer name for it.

In the same vein, I wonder why no one has yet come up with the suggestion that our government's bailout actions--looking more and more like nationalization--be renamed something more palatable, rather than simply denying that nationalization is what's going on.

Let's take the example of Citigroup (C). So far, the government:

1. Has pumped billions of taxpayer dollars into their finances to avoid its collapse;

2. Will convert some $25 billion of preferred shares to common stock, effectively diluting existing shareholders' stake by 74%;

3. Has discussed "whether to require the removal of Citigroup Chief Executive Vikram Pandit" but decided that it is "impracticable to oust him" mainly because there's no one to replace him;

4. Is forcing the replacement of every Board member;

5. Is watching every move Citi makes, and management is trying desperately to mind their Ps and Qs.

(Source.)

If that isn't nationalization, I'm not sure what the word means.

Webster's relevant definition is:

"2. to transfer ownership or control of (land, resources, industries, etc.) to the national government"

So let's stop kidding ourselves. A rose, by any other name.... But wait. In fact, as any politician knows, Shakespeare was wrong. You can change the scent of a rose; all you have to do is call it something else.

So instead of watching the public wallow in self-pity as the U.S. government denies nationalizing Citigroup, they need to find another name for it. Something "du jour," something we can empathize with and latch onto.

How about "recycling"? After all, isn't that what we do with smelly trash these days? We pull out what is useful, save it, and bury the rest. The government has no intention of "nationalizing" Citigroup; they simply want to carve out the rot and sell what's left back to its private shareholders, right? So let's not hear this "n" word anymore.

Disclosure: No position

Comments

[Dave Wrixon:]

Zombie banks mean taxpayer pain.

Call it what you like, it not free market capitalism at work. That system is broken and needs fixing before being road tested again.

Mar 02 03:30 AM

[frank blagdan:]

I am by no means an economist but from doing a lot of reading.This is not a repeat of anything
1.This is a global economey
2.There is an economic domino effect hapenning with either good or bad news.
3.The American media is helping to put fear into the public.
4.I see no bottem to this either.
5.It will play out as it is supposed to.
6.How many businesses are still here from the 1929 depression.
7.You cant debt yourself to prosperity.
8.The population of the USA should have gotten 200,000.00 per family
to get them on their feet with stipulations that mortgages,loans,credit cards be brought up to date or paid off.Any thing left would be for a car or put into savings
Yes i did the math.Is this crazy.You got ideas bring it on.We the people could have stimulated the economey this way instead of the banks and car companies getting all the money.
PS This would happen no matter who was president.
Hey USA This Bush is for you

Mar 02 03:56 AM

[who:]

Another name would be policy banks...which is used by the PRC!

Can't let banks like Citi go down otherwise America will loose its footing in the financial industry and possibly its economic influence.

Mar 02 04:02 AM

[akapital:]

Right, and you think we ever had free market capitalism? Why not call it what is was, oligarchy. Look that one up, oligarchy. That's what we had and unfortunately that's what we will always have.

Mar 02 04:16 AM

[Randy Miller:]

It is not nationalization. An example of nationalization was Chile under Allende taking over the copper industry, including a lot of Anaconda Copper's assets, with the long term goal of running them as a government entity. Obama and Geithner need to make clear that their intention at most is to go in, clean up some of these bank holding companies, and get out. FDR closed all the banks, went in and examined all of them, and reopened the solvent banks fairly quickly.

We need to clean the speculators out of Wall Street, and let the good conservative bankers run the show. There are good people there, but if Wall Street cannot clean itself up, either the government needs to do it, or the financial center of America needs to be moved out of Wall Street. There is a trillion dollars in capital sitting on the sidelines, and that capital will not get loaned out or invested until the owners of that capital feel they are putting it in a safe place. It speaks volumes that they do not feel safe putting it on Wall Street.

Mar 02 04:16 AM

[Steven Hansen:]

Katy, all the big banks are nationalized. we can argue semantics later.

i just want the end game to be spelled out as these are reactionary moves with little thought how this all ends.

Mar 02 04:18 AM

[ResourceWise:]

This is not nationalization - it is a public private partnership, a temporary arrangement to assist in the stabilization of systemically important financial institutions. Shareholders have been 'diluted', but not wiped out. I agree with Randy Miller that Wall Street needs to lose its licence to be a Casino, so that investors can feel confident that their investments will not be siphoned off by unregulated gamblers.

Mar 02 05:36 AM

[Moon Kil Woong:]

Well we can't call it recycling because that implies there is something there worth saving. How about quarantine. That's when we put something dangerous away so it can't easily infect the rest of the population. In this case it's quarantining a zombie bank that feeds on the green blood of the taxpayer.

BTW... there is no safe way of quarantining the toxic bad derivatives debt short of massive losses by those infected (every financial institution that touches Citibank). I feel that we're looking at Citibank causing us a multi-year economic flu with no antidote no matter what we do at this point.

And still terrible bank execs who are still running banks and refusing to hedge their bets wander around the world infecting the world. Refusing to recognize their losses and hold their eroding mortgage bonds and derivatives to maturity only exposes them to even more risk not less.

Are they addicted gamblers too?

Mar 02 06:04 AM

[Ferdinand E...:]

"Hegemony over the rest of the world". You mean over the 'Green Zone' in Baghdad and the Afghan highlands.

Blaming the present government for the blunders of the last is a favorite sport for many of the persons contributing to this site, but I've decided that it would be smart to believe something else. This government is going to make mistakes, but anything is better than having a team in the White House that was in favor of 100 years of war in order to win a war that was won 5 years ago.

As for Wall Street and its occupants, they will be operating that casino for at least a few more centuries. Why? Because the American people are smart enough to want them to operate it, regardless of what the afternoon TV audience sometime fools itself into believing..

Mar 02 08:34 AM

[speculari:]

Our government should announce that a temporary "cominternment" of the bank(s) shall take place. In addition, the statement should come directly from a new head of this function. The "Commisioner of Cominternment" seems apt. Pretty catchy, huh!

Mar 02 09:24 AM

[Mad Hedge F...:]

AA fd c So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect “N” word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn’t amount to political suicide for Obama. The FDIC’s Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine “too big to fail” banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. I was involved with both, and serious coin was made by the sellers and the buyers. Not to drive a stake through the hearts of these de facto “zombie” banks really would risk a Great Depression II and an “L” shaped lost decade. The markets would love decisive and surgical action like this and rocket.

Mar 02 09:28 AM

[Lamont B Du...:]

The way we Americans can be frightened by a word would be hilarious if it weren't such an impediment to acting in our national self-interest. This word-terror is the gift of ideology. An ideology is the socio-political analogue of a scientific theory; you start with a hypothesis (aka hunch), collect data and try to assemble a coherent model. Eventually, some new datum comes along that requires model to be either tweaked or discarded.

Every scientist who formulates a theory knows at the outset that it is incomplete, that more data is coming and the theory as initially presented will some day be demonstrated to be at least partially wrong. The best scientists welcome these data. They know that being proven wrong is best way to gain a better understanding of a topic of great interest to them. (And someone else did the heavy lifting!)

Unfortunately, ideologues tend to be significantly less data-driven. When the datum arrives that demands an ideological model be reconsidered, the ideologue will often attack the datum as wrong or irrelevant and likely fabricated by someone with a conflicting ideology. They cling to their ideology like Ishmael to Quequeg's coffin.

Have three decades of blind belief that the best economic policies are to transfer wealth from the middle class to ultra-wealthy, tilt the economic playing field hard in favor of the largest corporations, gut regulations that might inhibit the fraudulent representation of junk-grade assets as AAA and deferring taxes by borrowing brought you to a scenario that any thinking person would have predicted, uh, three decades ago? Well, the obvious solution to that is more tax cuts for the rich!

Let me know how that works out for you.

Mar 02 09:38 AM

[Lamont B Du...:]

About "too big to fail"; the best comment I heard on that was from Robert Reisch: "If a business is too big to fail, maybe it's just too big". He went on to point out that US economic regulatory policy worked to limit the size of individual business for a long time, and it seemed to work pretty well.

Mar 02 09:46 AM

[Barry Sotoero:]

Conservatism
Conservatives believe in the importance of social order. This is reflected in a respect for tradition, an emphasis on the importance of religion, and a stress on the importance of inequality - such as inequalities of class or caste - as the basis for structured social relationships. Welfare is a secondary issue, but the kinds of concerns which conservatives have are likely to impose restraints on welfare, with a particular emphasis on traditional values in work, the family, and nationhood. Welfare does raise concern where it is seen to have implications for public order - one British conservative commented, in commending the Beveridge report, that "if you do not give the people social reform they are going to give you revolution."

Christian democratic thought is closely related to conservatism, but it also has important distinguishing features. Like conservatives, Christian Democrats place a strong emphasis on order; but order is to be achieved, not primarily through state action, but by moral restraints. These moral restraints have principally in Europe reflected the influence of the Catholic religion. Catholic social teaching has emphasised both the limits of the state and the responsibility of people in families and communities for each other; christian democrats tend, then, to favour limitations in the role of the state while at the same time accepting moral responsibility for social welfare.

Liberal individualism
Liberalism begins from the premise that everyone is an individual, and that individuals have rights. As a political position, liberalism has been important as a means of defending people from abuse by authority. Although liberalism was initially a radical doctrine, it has also been used since the 19th century to stand for a defence of propertied interests.

The central value of liberalism is freedom. All freedoms are not equally important; the main liberal values are concerned with certain particularly important freedoms, such as freedom of assembly, of speech, and of worship.

Liberals mistrust the state and argue that society is likely to regulate itself if state interference is removed. Hayek argues that all state activity, whatever its intentions, is liable to undermine the freedom of the individual; that society is too complex to be tampered with; and that the activities of the free market, which is nothing more than the sum total of activities of many individuals, constitute the best protection of the rights of each individual.

Fascism


A rally of British fascists in 1939.
(c) Hulton-Getty collection.
`

Fascism is often represented in the academic literature as a pseudo-ideology, lacking any coherence or system of thought. This was a political position taken post-war in an attempt to deny the romantic and emotional appeal of fascist thought. Fascist ideology is based in an authoritarian collectivism. The individual is meaningless; the collectivity (the state, the nation or the race) is paramount. Fascism has been characterised by a strong social agenda; in Nazi Germany, the desire to foster racial supremacy included extensive state intervention in society and the economy, with a stress on socialisation (both through schooling and youth movements) and eugenic policies.

Where are we headed?

Mar 02 11:06 AM

[carey_jim:]

Words and their definitions are important. Randy Miller is right. It isn't just a matter of semantics.

Instead of using language to understand the world, we American often use language as a form of social control. We think if we label someone or something then we can control it and neutralize potentially dangerous behavior and social actions. Socialist, communist, fag, nigger, left-wing, dyke, liberal, fundamentalist, conservative, free-enterprise, nationalization ... are all words that simplify complicated issues and make rational thought about them impossible.

The sociologist David Riesman classified societies and cultures as either 'other directed' or 'inner directed' and he showed that most American are 'outer directed' while, paradoxically, most Japanese are 'inner directed.'

Outer directed people, such as Americans, look around to others to learn what to believe and how to act and not, as inner directed people do, to their own principles and ideas.

Americans are a nation of nations and a culture of cultures and every group has its own potentially ambiguous gestures and practices which cause every communication to be fraught with the danger of unintended meanings and interpretations.

Japan is a unified culture with a thousand year history and the Japanese have little ambiguity about cultural expectations and therefore little need to define the same words and concepts that Americans agonize over on talk radio, in churches, at political meetings and social gatherings.

But the Japanese are individualists, at home, and don't give a damn WHAT their government or corporation wants them to think, even if it forces them to do jumping jacks in the morning before they start work and conducts cheer leading sessions every morning too.

When they are home, the Japanese become themselves again.

But too many Americans spend their time at home subconsciously practicing the definitions of various words and practicing what they will say and believe at work, in their clubs and among friends.

Maybe it's time we stopped practicing what to say and started trying to construct rational belief systems based on real data and agreed on definitions of fundamental words such as socialism, conservatism, free-enterprise and liberalism.

Mar 02 12:55 PM

[fireball:]

katy
wonderful straight talk with a sense of humor.
barry
seems the textbook definitions may be a little muddled these days but a very good point.
i am a liberal if that means liberally protecting our constitutional liberties.
i am a conservative if that means conserving the bill of rights and our constitutional freedoms.
i just want the dumbass politicians to stay out of my wallet and my private affairs. we can live without them. they cannot "live" without forcing our compliance and stealing from our productivity.
i am the only one qualified to decide who should recieve charity and how much from my pocket.
i.e. i am not going to give money to a drunk or drug addict. instead i will take groceries to his wife or buy his children clothing. i know in my neighborhood who to give charity to and how to give it. washington is completely unqualified to use these discretions. i do give some but the irs confiscates so much that i am not as generous as i would like to be.
i know that odumbass and mcpain are not qualified to decide who gets charity from me. when i was young people were ashamed if they were on wellfare. the churches and community were ashamed if it was needed. the derelicts somehow managed to stay drugged or drunk all on their own. a bastard child was a shame, not a bigger check.

Mar 02 01:00 PM

[robert.b.fe...:]

While this article is good as far as it goes the author left out some salient points: CITI (C) Bank of America (BAC) and to a lesser extent Wells Fargo (WFC) were pushed in to becoming zombie banks by the very agencies that are publicly excouriating them now. This action was taken to protect bond and share holders of failing financial institutions that should have been allowed to fail. Government sweet heart deals, promises of a government backstop for thier losses and god only knows what other stuff was on the table brought this about. Why was lehman allowed to fail when Merril wasn't? There definatly is more going on than meets the eye here. If the FED suddenly wipes out the share and bond holders of BAC and C by nationalizing them, after promising them the moon, they will loose thier credibility and willing partners for future escapades of this nature.

Mar 02 05:17 PM

[a fat panda:]

You are by no means a math wiz either. Do you know how much 200,000 per family is? The 800 billion stimulus package would cover 4 million families. There are more families in this country whose last name starts with S.

Who gave this a plus rating?


On Mar 02 03:56 AM frank blagdan wrote:

> I am by no means an economist but from doing a lot of reading.This
> is not a repeat of anything
> 1.This is a global economey
> 2.There is an economic domino effect hapenning with either good or
> bad news.
> 3.The American media is helping to put fear into the public.
> 4.I see no bottem to this either.
> 5.It will play out as it is supposed to.
> 6.How many businesses are still here from the 1929 depression.<br/>...
> cant debt yourself to prosperity.
> 8.The population of the USA should have gotten 200,000.00 per family
>
> to get them on their feet with stipulations that mortgages,loans,credit
> cards be brought up to date or paid off.Any thing left would be for
> a car or put into savings
> Yes i did the math.Is this crazy.You got ideas bring it on.We the
> people could have stimulated the economey this way instead of the
> banks and car companies getting all the money.
> PS This would happen no matter who was president.
> Hey USA This Bush is for you

Mar 02 07:05 PM

[Seen All It...:]

I would call it an unofficial conservatorship. The regulators are definately calling the shots. Which would explain Citi's break with the other "financial Institutions" about Mortgage Loan Modifications.

Mar 05 10:08 PM

[frank blagdan:]

Hey genius,
Remember this is an opinion...... free speech........If you dont like it I dont care.Your just like every other un in formed blowhard.I was just making a point.Now go back to your beer.


On Mar 02 07:05 PM a fat panda wrote:

> You are by no means a math wiz either. Do you know how much 200,000
> per family is? The 800 billion stimulus package would cover 4 million
> families. There are more families in this country whose last name
> starts with S.
>
> Who gave this a plus rating?

Mar 07 02:14 AM