Thanks for a fine post, Gail. Many questions, indeed.

Who ever would have thought the USA, under a Republican administration, would nationalize private business?

It may or may not be a good idea to do such a thing, but the manner in which it was done suggests a coup d'état rather than some sort of rational plan. Of course, it could just be panicked reaction to events that are spinning out of control -- but again, the timing and the direction the nationalization is taking, and the speed with which consent was manufactured in Congress, in the media, and (almost) in popular opinion suggest careful prior planning, The selection of Goldman Sachs executives to manage this financial wizardry, while not entirely without merit --after all, they are the most successful of the standing troops -- just has an off-odor.

I know nothing, but I talk to a lot of people, from a lot of different backgrounds, every day. And to most of us, this feels like rapid progress to something like the USSR. And we know where that led. I don't see how this can really go anywhere except to 1. A thug state or 2. a full-fledged oligarchy in the style of ancient Rome.

Many people have said this, of course. I just want it out there to see if such considerations are completely off base. Maybe the Government is really doing the best it can under the circumstances. I'm glad I don't have to be making the decisions.

There is a series of posts over at Global Guerrillas about the hollow state, the transition from "nation state" to "market state", and the legitimacy of the state (social contract) of which this is one. That line of thinking has to be included in any consideration of what is "appropriate". The more the market state gives to the fat-catters, the more illegitimate it becomes, because it's the fat-catters that own the "market state".

Nationalizing - if that is the right word - is another solution in the wrong direction. Seems to me these big institutions need to be broken up. Capital requirements for large projects can be met with specifically chartered public interest corporations - like the Blues used to be - and research provided by open source, public interest "systems libraries".

I'd suggest pushing down the scale of production to local levels, where impacts can be seen "within the horizon" and sharing the information,learning and some set of standards. Instead of 3 national banks, maybe 3 community banks within every bioregion (at least). All of them with ownership restricted to those who drink the water in that local community.

cfm in Gray, ME

While some businesses could split their accounts among banks, this becomes difficult if dozens of banks are needed for ordinary transactions.

Oh c'mon, that's just an accounting 'speed bump' for a multi-currency, globalized corporation. Seriously, though, if the corporate giants pursued a cloud bank model (Bank 2.0?), there would be pressure to create an ever-increasing number of banks which, to my lightly-educated mind, is guaranteed to create at least as many problems as it solves.

WOW! so many topics, so little time. Great post.

If the dollar is trying to lose value, but the 'Global Economy' is causing all other currencies to follow our lead, can the dollar really go down that much?

The problems underlying the various industries you list are varied.

The financial and much of the banking system is insolvent, and unless we are willing to accept Great Depression v2, they need to recapitalized. The good news is that there is a formula for doing this that works pretty well. In a nutshell: nationalize, take equity stake, wipe out shareholders, creditors take a haircut, fire management, rehabilitate, and finally re-privatize. Too bad Paulson isn't doing this 'cause it'll come to it in the end anyway. The other side of the coin is how the problem was created. Lacks and non-existent regulation, information asymmetries, complex derivatives that are essentially can't be priced, the agency problem, perverse incentives ... the list is endless.

In some of the other cases listed, the industries are simply on their way out. Airlines and cars for example. In these cases the invisible handle is trying to clean-up the rubbish in the economy so the capital can be put to more productive use.

Finally, a number of the listed industries where public investment to serve the public good makes sense. Rail and electricity are probably the best examples. Supposing we have the capital available, these investments can make a lot of sense. However, between oil shocks, a massive misallocation of trillions of dollars in to unproductive housing stock, and the capital destruction and deleveraging currently taking place, I don't think it's clear that capital will be available in the foreseeable future.

One of the things many have been saying here from the beginning is that the energy situation would lead to issues of governing common resources, which is a branch off from Hardin's Tragedy of the Commons. The seminal work re: commons governance was written by Elinor Ostrom called Governing the Commons, the findings of which, if I were to sum it up in one sentence, would be this:

The only way to govern the commons is to either a) change the overall set of norms at the local/tribal level to one of good sharing OR b) collectivize the common resource pool.

I have to say, personally I cannot say I that envisioned that all of this would start with the socialization of the economy prior to the socialization of energy. However, in retrospect, it makes sense, because the socialization of the economy provides the access of the public sector into every other sector through capital controls. I would imagine we will see a whole bunch more NOCs, NNGCs, and the like in the near future, even if they are private entities in name only, they will act in concert with national governance institutions.

Here's a good summary of Ostrom's work:

* People are trapped by the Prisoner's Dilemma only if they treat themselves as prisoners by passively accepting the suboptimum strategy the dilemma locks them into, but if they try to work out a contract with the other players, or find the ones most likely to cooperate, or agree on rules for punishing cheaters, or artificially change the incentive ratios - they can create an institution for collective action that benefits them all. This resonates with Peter Kollock's taxonomy of strategies for dealing with social dilemmas - one strategy is to change the rules of the game.

* Changing the rules of the game to turn zero-sum games into non-zero-sum games may be one way to describe the arc of civilization for the past 8000 years: using symbolic media and social inventions, people have created institutions for collective action since the emergence of agriculture spurred the invention of writing. But for the most part, we've overcome obstacles and built these institutions blindly, without any systematic knowledge about how the game works. Ostrom takes an empirical approach: By examining legal records and other public documents, is it possible to determine whether every population overconsumes and under-provisions all common pool resource? She found that in many different cultures all over the world, some groups would find ways to overcome the obstacles that defeated others - by creating contracts, agreements, incentives, constitutions, signals, media to enable cooperation for mutual benefit.

* Social dilemmas of multiple dimensions are obstacles on the path to creating institutions for collective action; these dilemmas must be overcome if institutions are to succeed or exist at all. Lack of information about the system can be an obstacle to agreement among the individuals who make up the system.Systemic information about salinization of wells was an obstacle to water-sharing agreements in California; individual water-users knew whether their wells were pumping salt, but none of them had compiled the information to see the overall pattern in the watershed, and no individual was willing to pay the price of gathering it. In this case, the US Geographic Survey had the data, thus overcoming this obstacle. Another obstacle, free-riding, creates the second order social dilemma concerning who will bear the cost of policing the rules once they are agreed upon. So although the overall formula is simple - social dilemmas can be solved through institutions for collective action that are built by overcoming known obstacles - in practice, each group that struggles to build an institution works under the handicap of being largely unaware of knowledge about how such institutions succeed and fail.

* In comparing the communities, Ostrom found that groups that are able to organize and govern their behavior successfully are marked by the some basic design principles:
o Group boundaries are clearly defined.
o Rules governing the use of collective goods are well matched to local needs and conditions.
o Most individuals affected by these rules can participate in modifying the rules.
o The rights of community members to devise their own rules is respected by external authorities.
o A system for monitoring member's behavior exists; the community members themselves undertake this monitoring.
o A graduated system of sanctions is used.
o Community members have access to low-cost conflict resolution mechanisms.
o For CPRs that are parts of larger systems: appropriation, provision, monitoring, enforcement, conflict resolution, and governance activities are organized in multiple layers of nested enterprises.

Definitions

The commons is a general term for shared resources in which each stakeholder has an equal interest. Studies on the commons include the information commons with issues about public knowledge, the public domain, open science, and the free exchange of ideas -- all issues at the core of a direct democracy.

Common-pool resources (CPRs) are natural or human-made resources where one person's use subtracts from another's use and where it is often necessary, but difficult and costly, to exclude other users outside the group from using the resource.. The majority of the CPR research to date has been in the areas of fisheries, forests, grazing systems, wildlife, water resources, irrigation systems, agriculture, land tenure and use, social organization, theory (social dilemmas, game theory, experimental economics, etc.), and global commons (climate change, air pollution, transboundary disputes, etc.), but CPR's can also include the broadcast spectrum.

http://www.cooperationcommons.com/node/361

Government as poor business manager

Having worked for many years for private and public entities, I just cannot fathom why anyone would believe this. I have worked for corporations that are legendary for their spectacular inefficiencies. Scott Adams has made an entire career out of lampooning them.

There's good and bad everywhere, I think. The so-called inefficiency of government seems more like a political ploy than anything else.

One thing I thought about mentioning but didn't is the high rates of interest assumed in pension plan funding. I am not sure exactly what pension plans are assuming now. A few years ago, a typical rate of return assumption for a 50% / 50% mix of stocks and bonds was 9% per year. A few companies were even assuming 10%. Companies would increase the portion of their investments in the stock market because this allowed them to justify a higher average rate of return.

My work has been on the "casualty" side of actuarial work, and it is the actuaries working on the "pension" side who have been making these rate of return assumptions. When some of us on the casualty side would see these assumptions, we would shake our heads. The assumptions were fully disclosed, and I am sure the management of the funds "bought off" on the assumptions. (Most casualty insurance programs use bonds for funding, and the interest rate assumptions are based on average bond yields.)

If you are not aware, the higher the rate of return assumption used by the pension funds, the lower the annual contributions. Thus, management of pension funds would "push" for as high a rate of return assumption as possible. The reason there have been so many cut backs in pension programs in recent years is because it became more and more clear that these high rate of return assumptions couldn't be depended upon, and pension funds had to start increasing their contributions.

The first thing to clear up is the identification of nationalization with socialism. Capitalist govts have never hesitated to nationalize losses. And socialist govts have not always nationalized everything -- e.g. Venezuela.

The key issue is in whose interests things are done. Our problem right now is that the foxes are guarding the coop. Interventions are not for the sake of the common good, but to selectively rescue and/or enrich various factions of the elite, who are at war.

A gov't that was concerned about the common good, not in the hip pocket of elite factions, and cognizant of peak energy and its implications would certainly not hesitate to nationalize the commanding heights of the economy, including financial institutions, it would immediately implement a far steeper progressive income tax schedule, a steeply progressive inheritance tax, and possibly even an asset tax. The schedule would be such that perhaps the bottom third would pay no taxes at all. The military would be drastically downsized to say a budget equal the size of Russia's or China's (the US military budget is currently over half the world's!). The 700 odd bases around the world would close, the troops would be brought home today, some discharged, others recruited to the rebuilding I will describe. In the process, disarmament treaties with the rest of the world would be negotiated.

The domestic rebuilding program would center around rebuilding dense towns that are near agriculture and are not dependent on cars, nor even have them. Agriculture and small industry would provide employment in these towns and would be either privately owned or cooperative. Clearly this would have to be done incrementally. The outer suburbs are becoming/will become energetically non-viable, and there has to be a trial-and-error approach to contracting to density with agriculture and local industry.

The key aim of all this is that everyone be able to survive: eat, have a roof, medical care, etc and in general have the extreme stress taken out of their lives. "Zero misery" is a slogan they have in Venezuela that I like.

My daughter lives on a commune in W Va. Their quality of life is, in many ways, as good as that of any suburbanite, but per person they consume a teeny fraction of the resources, and are not devastating the environment. It's absolutely possible to live well with a far smaller resource and ecological footprint.

A peoples govt should be pragmatic about nationalization. There is no reason to nationalize businesses that are working and there is no reason even not to outsource gov't functions if and where that works, and govt doesn't outsource supervision and oversight. The key thing is to keep the foxes out of the hen house, i.e. the govt has to be clean, not beholden to and manned by billionaires. Nationalization alone doesn't solve anything.

Of course, this isn't in the cards right now. Nor could such a gov't get anywhere as of yet -- too many of us are still more concerned about saving our assets than saving our asses. But down the road, something like all this has to be put on the table if we are to survive.

I VERY reluctantly favor nationalization because bank/financial managements have shown they can't be trusted to do their jobs.
It's outrageous that banks continue to be reluctant to lend and that assets are not transparent.

At the risk of losing all credibility, I would mention that under Hitler, who did not nationalize the banks, bankers and business financiers were brought to heal by the threat of ending up in Dachau. In fact, they became instumental in the Nazi (Mefo) bond scam.

The US government continues to entice the spoiled financial juvenile delinquents with treats and letting them keep their golden parachutes or in the case of the bankrupt AIG throw wild parties for management to celebrate their bankruptcies.
It seems rather imprudent for the government give out money until new management (practices) have been put in place.

I remember that during the war the Gestapo used to publically hang deserters to 'raise morale'.

Being infinitely more humane than Adolf, the alternative is for the US taxpayer to literally take over Wall Street and the banks and implement new management from the top.

I wish(sigh) we could pass ex-post facto laws on the unregulated hooligans of Wall Street but it's against the Constitution(which is why we are screwed). The scheme of the deregulator theorists hinges on this fact.

Still, Congress might in their wisdom make the life of financial executives a living hell with hearings and the IRS might be apply some pain and of course, we NEED to unleash the lawyers with their class action suits.

Right now most people expect hyperinflation(helicopter money) will be the next step of rescue.

What we need are firing squads.

To 'raise morale'.

The stuff being nationalized is the junk that nobody wants.

I'm in favour of nationalization, but I'd rather see profitable outfits such as electric utilities and oil companies nationalized than negative-value junk such as insolvent banks.

My preference for most of the instutions on your list (and quite a few more I could think of) is more along the lines of a cooperative "third way". For most of these, ownership could be in the hands of a board of trustees elected directly by the public. This would get them out of the hands of both the government and powerful private interests.

Free market ideology makes much of the fact that the "dollar vote" of consumers is an elegant feedback system to optimize markets. There is some truth to that, at least when pure private goods are concerned and there are no externalities or other market failures involved. In theory, real votes cast in the political sector should serve as an equally effective feedback system in the public sector, keeping government on track. In practice, we all know that reality seldom matches up very well with theory.

What characterized most of the institutions on Gail's list is that they deal neither in pure private goods nor in pure public goods, but rather in something in-between: toll goods. Toll goods share some charactistics of public goods and some of private goods. When privatized and run purely as a private enterprise, they might be made profitable, and thus economically "efficient", but they inevitably fail to fully and adequately serve legitimate public interests. On the other hand, nationalized, socialist-style management can be very responsive to public interests, but tends to eventually become economically inefficient and a net drain on the larger economy. Only by incorporating the twin feedback systems of dollar votes and political votes can responsiveness to the public interest be balanced with economic efficiency.

Thus, to implement this theory:

-I would merge Fannie, Fredie, and also Ginny Mae and the smaller home loan boards into a single entity, governed by a board of trustees elected directly by the people. (This is an important point: it is only by DIRECTLY electing the trustees that effective political feedback is built into the system. Forget about appointed trustees - that only creates a political football/milk cow.)

- Ditto with the Federal Reserve System, with the FDIC, and with the PBGC. Each would have its own directly elected board of trustees.

- We already have banking entities that fit my model - they are called credit unions. Maybe what we need to do is to establish a pathway that will enable more banks to re-invent themselves as credit unions. By the way, there could also be considerable consolidation at the community level. If the credit union is owned by the depositors, who are identical with the public, then why is there a need for multiple, competing credit unions?

- We also have insurance companies that fit my model - they are organized as mutual insurance companies. Only a few of them actually let the policyholders actually vote for the board, though, and this would have to change. Again, a pathway could be established for the stock companies to convert to mutuals. Once again, if the insurers are owned by the policyholders, who is really being "protected" by having a multiplicity of competing insurance companies. Here, too, there could be a lot of consolidation.

-Oil & Gas: The actual hydrocarbons in the ground are something different - those are actually common pool goods. In my opinion, one of the best approaches is Alaska's. These resources are viewed as being assets of the state and its people; prospects are leased in exchange for payments which go into Alaska's Permanent Fund, and from there are partially distributed to all citizens. Something along these lines is a good model that could and should be used for all common-pool goods, including all mineral deposits, fisheries, electromagnetic spectrum, etc.

As for oil & gas refining, distribution and marketing, this could also be set up as a toll good provider under the governance of a board of trustees directly elected by the public. Once again, if this is done, then there could be considerable consolidation within the industry.

-Electric Utilities (and all other utilities): All utilities are classic toll goods, and should all be reorganized as suggested above. A few people are lucky enough right now to be serviced by co-op electric or telephone systems, and these work well to the benefit of those they service. We should all be so lucky.

-Railroads (intra- and inter- urban): These are another classic toll good, and should likewise be reorganized as per above. We might actually start make some real progress toward Alan Drake's EOT concept if all rail systems were owned and operated directly by the public.

-Airlines (and airports): These also should be considered toll goods. A complicating factor is the prospect that the airline industry will have to contract substantially as fuel costs rise. Converting them to public owned and operated cooperatives while they are still IN operation might be the best way to assure that the contraction is managed in a manner that assures that at least some essential level of service is sustained.

-Auto Manufacturers: BUZZ! Nope, automobiles are pure private goods, as is the manufacture thereof. The best way to assure that there continues to be some minimal domestic automotive manufacturing capacity is for federal, state, and local governments, utilities, and other large institutions like universities to go in together on large-scale, multi-year pooled procurement contracts for their motor pool requirements. This will set a financial floor under one or more auto manufacturers, and will also have the benefit of exerting considerable influence over the auto makers when it comes to things like fuel efficiency and development of alternative fuel systems.

-Housing: We already have condominiums, cooperatives, and cohousing communities that fit my model. Perhaps a pathway could be provided which would facilitate the conversion of more multi-family buildings, and even entire neighborhoods of single family housing, into one of these cooperative models. For the most part, though, the single family detached house is a classic pure private good.

Doing anything close to all of the above would require a massive restructuring of the US economy. Please note however, that it is not the same thing as state socialism. We are not talking here about the government actually owning and operating any of these enterprises (except possibly briefly to nationalize them and then turn them over to directly elected boards of trustees). I dobt very much that I will live to see any of this, but remain convinced that something along these lines would be our best way forward.

Starting out this thread assuming that nationalization and subsidizing are the same thing only leads to mad confusion. In nationalization, the state takes over and runs industries. The profits of those industries, after appropriate subtractions, are then used the same as taxes.
In subsidization, the state gives (or sometimes loans) money, property, etc. to private businesses, supposedly for some common good. Like the many subsidies IBM has received here in the Hudson Valley. Does that mean that IBM was "nationalized"? If a bankruptcy court takes over a failing business temporarily to keep it in business, is that "nationalization"? What about the government's contracts with Blackwater? Has Blackwater been nationalized?
The capitalists wet dream is to get the state (meaning the taxpayers) to take over a failing business, pump taxpayers' money into it to make it profitable again, and then to give it back to private business for pennies on the dollar. They have sure done a good job of brainwashing Americans that that state capitalism (with the corporations running the state is the way it should be. But I'm old enough to remember that that is what fascism was.
As for the claim that private business can always do things better than the government, remember that here in the U.S. the government is run by Big Business, and they deliberately mismanage and sabotage public activities such as education and Social Security disability in order to convince people to turn them over to private business for private profit.

Nationalize here, nationalize now!

-- Bumper sticker

The Federal Reserve is not a part of our government. It is a private central bank. (Which just happens to be owned by those who would profit from a bailout of the financial sector.) So I dont see how you can include the Fed's actions as part of a nationalization strategy! If you want to talk about nationalization, start with the nationalization of the Federal Reserve. All Fed assets should immediately be seized, since it is an unconstitutional criminal organization and a cancer on the nation.

By loaning directly to corporations, the Fed has just stepped up their level of criminal activity. They should be immediately charged with criminal conspiracy to defraud the people of the United States. Even if they succeed at averting a deflationary depression, the new bubble they will create will rob the American people of all their assets and purchasing power. There is NO way they will ever avert a depression without overshooting the mark on inflation by about 10X. They could drive oil to $500 a barrel with the wreckless actions they are taking. It is a most dangerous game they are playing with our money supply, and they have no legal right to be doing it in the first place.

A very timely post, Gail, and the comments are good too.

If the financial crisis continues to worsen, or if it comes close to some of the gloomy predictions at TOD, then the pace of political change will quicken.

It's always struck me as strange that predictions about the future (financial collapse, petrocollapse, lower standards of living) mostly seemed to assume that the political situation would remain the same.

If history is any guide, we should expect rapid shifts in politics. At the very least, a return to New Deal policies. Perhaps a more leftward shift to social-democrat and Marxist politics on the one hand, and an authoritarian corporate-state (~ fascism) on the other. Or perhaps confused populism and uncoordinated discontent.

For sure, there will be a re-discovery of Keynes and Marx, whose popularity soars in times like those to come.

Other countries will follow similar trajectories. Even now, while the attention of Americans has been focused elsewhere, the political complexion of Latin America has changed completely (to mildly left), and Nepal has just voted in a Maoist prime minister.

At a certain point events will take over and it will feel like we're being carried down the rapids. Hopefully we can do a little intelligent steering to avoid the rocks and waterfalls.

Bart Anderson
Energy Bulletin

Long time overdue de-lurk.

I tended to not post here for so long because many folks here say the right things so much better than I can. This subject changes that.

What most people do not realize is that the Fed is as Federal as Federal Express. It is not a government agency. It is a private bank created by people with names like Rothschild, Morgan, Warburg and Rockefeller with the license to print money out of thin air and lend it to the government at interest. Your income taxes pay the interest - the IRS was created at the same time as the Fed.

With their presses rolling this _private_ bank is snapping up US private assets on the cheap. This is not nationalization, this is a corporate takeover funded by a sleeping public. You can call it a huge theft with the government aiding and abetting the crime.

Ergo, this is not communism, this is corporate socialism or just plain corporatism.

-Mike-

I also don't think the bailout/handout has anything to do with socialism at all. It's more the way a corporate state steps in to rescue the private sector, by handing out the taxpayers money.

But then the 'free market' was always a myth, based on equal parts propaganda designed to obscure reality, and collosal ignorance of how the economy functioned minus the political rhetoric.

Now, as the crisis worsens the veil of obsfucation and delusion is being ripped aside by brutal reality and the true nature of the system revealed for what it is.

The line between the openly corporate state and fascism is unclear and one can glide into the other with ease. Democracy is rapidly being replaced by a harsher and harder alternative as we speak. It's happening before our eyes. This may well be the last 'meaninful' and 'free' election we see for a long time.

What's going to be left standing? It all depends how bad things get. Usually the military is left standing when society begins disintegrating around it. This could happen in the United States too. The military has the discipline, the organization and the prestige to survive when much else falls. It already functions as almost as a state within a state.

One of the collosal problems we face is that the financial system has created a huge blackhole of debt many times bigger than the real economy which can no longer support it. There is a massive dislocation here. It would appear impossible for the real economy to 'buy back' this stupendous debt no matter how hard they try. The debt is so much bigger than the real economy. The dark and whirling debtstar, has the power to swallow not just banks, one after another, but entire countries too. That is the wealth and tax revenues of entire countries.

I hope we're not heading for a second Great Depression, that would be ghastly and terrible. Unfortunately I think the signs are pointing in that direction.

E.F. Shumacher pointed out a possible strategy to follow in nationalization. Businesses would be required to give the government a share in ownership and control via a stock split. In exchange the business would no longer pay taxes. The government would receive its share of any dividends the board decided to pay. He suggested that the nationalization would start with those businesses which employed the most people. He also suggested that the highest pay for the top executive be limited to ten times that of the lowest paid employee. Oddly enough this has similarities to what has happened at AIG. There are also significant differences in that we bought a failing business and instead of keeping its productive assets we are keeping the worst parts of the business and will likely sell the good parts back to Wall St for a pittance.

How Much Nationalization Is Appropriate?

Zero.

The US is morphing into the Soviet Union before my eyes.

The Soviet Union without the Marxism, the vodka and the fur hats.

For failed businesses, there is a good system in the US; it has lots of well trained, highly experienced personnel. It's called 'Bankruptcy Court'. It really works well. Debts are forgiven and businesses can reorganize under judicial supervision, or under trusteeship.

The 'Sovietization' of failed assets was a primary contributor to USSR's collapse. Their failed assets were countries. The US's large and growing collection of failed assets is becoming equivalent in scale to the Soviets' collection of defunct satellite states.

It is one thing for a leadership to make mistakes, nobody is perfect. To embrace failure the same way an adversary did is idiotic.

Where does all of this end?

Most of the solutions are geared to assisting liquidity, although part of Paulson's plan is to purchase toxic debt. Liquidity is not the problem, banks are hoarding cash to bolster their balance sheets. The problem is the massive levels of now toxic derivates which has also been insured mainly by AIG. Banks are afraid to lend in case the borrower goes bust.

This debt mountain is some 650 Trillion Dollars globally, bailouts of a couple of trillion can only serve to shore up this ediface for so long. Nothing can be done to make this debt 'go away'.

Worst case scenario: The mountain of debt collapses wiping out every major currency. Countries are bankrupt. Welcome to the Nu-Stone Age.

All this was expected to happen with Peak Oil, it seems the Global Elite have pulled the trigger early.

I am amused to recall how the Pundits of Capitalism were running down Communism in the 70s and were jumping with joy when USSR collapsed. Where are they now and what are they to say now that the US govt. is nationalising the private companies faster than what Putin is doing in Russia?!!
Thank God our Indian Govt. did not open up the banking and insurance sector totally to foreign investment despite the pressure from US govt. Otherwise our banking and insurance companies would have been in the same soup abd sunk down the same way as Lehman Brothers and AIG.

According the 'The Times' the US is considering morphing their toxic asset buying program into the British approach, in which preferential equity is taken, but allowing others to buy at the same price as the Government when liquidity is required:
http://www.timesonline.co.uk/tol/news/world/us_and_americas/article49123...

I can't remember when I last thought that the UK government was right about anything, but in this case they do seem to me to have taken the right steps, as it actually addresses the underlying problem of liquidity and recapitalisation, and at least potentially gives the taxpayer something at least back.

It is though, still a drop in the bucket compared to the size of the financial markets, so success is far from guaranteed.
We do now have the fundamental instruments in place to avoid financial melt-down, although tough times are still ahead, as in both the UK and US many estimates still put the over-valuation of house prices at around 30% at least, and personally taking account of recession I would put the minimum overvaluation at around 50%.
Personal debt in both countries has to come way down too, so the hits on the balance sheets will come thick and fast.
So you are looking at a five-year recession, before factors like the low availability of oil are considered.
If the financial system avoids breakdown though at least that helps.

If the US wants to follow the British pattern, it should be noted that the sums involved if scaled up to the US economy are around $5 trillion, not the puny $700 billion of the current plan.

Gail,

You have raised some important issues regarding nationalization. I have a few questions that have arised in my mind. Have the curtains of capitaliasm finally fallen? Take a look at Ireland, their top 3 banks are now nationalized. Have we over extended government intervention? We've gone beyond typical monetary and fiscal policies, to taking control of instituations that were built on private equity and entrepreneurship. If we continue this trend, are we infact discouraging future expansion, or at least dampening it? Once these companies begin to bounce back, how will we proplery distribute profits?

1 The government lowers the FED lending rate.

2 Banks drop the amount of interest paid on savings accounts, CD's, money market funds.

3 People take their money out of banks and buy real estate, stocks, bonds, mortgage backed securities anything with a higher interest rate.

4 High interest mortages and ARMS are sold to those with bad credit, low income, minimal down payments on easy terms.

5 Interest rates were raised to try to get more people to lend and to increase the savings rate.

6 ARM's reset triggering foreclosures and a flood of homes available on the market.

7 The government tried to lower interest rates triggering a credit crisis.

8 The government not knowing what is going on starts buying mortgages that should not have been written in the first place. That was easy. Then they try to take over the banks to make it easier for people to get money.

9 The government has not fixed the problem of bad loans being written. It gets caught in trying to manipulate the banking system and more catastrophe occurs.

10 Nationalizing a banking system the government cannot fix through legislation could lead to more chaos, loss of wealth, and huge losses from under-collatoralized lending to those with poor credit histories and potentially shaky cash flow.

It really hit home today. I knew GM was not doing well, but in the past when GM was in trouble it meant a couple of quarters of poor earnings, maybe a plant closure or a model discontinued.

I happened to catch a link about GM today. I'm completely flabbergasted. No matter what you think of their cars, GM is one of the biggest economic engines in the history of the world. They have divested a lot of pieces like Delphi the last few years, but they all pretty much rely on business from GM, as do literally thousands of other suppliers and subcontractors. It is an economic ecosystem that goes around the world and touches millions of people.

Look at GM's financials. 263,000 employees, $171 Billion in revenue, and a market cap that is now only $2.6 Billion? How does that happen? Their stock has dropped over 80% in the past year.

It is hard to imagine they are going to survive without some significant intervention, and who has the resources besides the US government, making the assumption that even the US government can help? China? Middle East?

And then what about Ford? What about Chrysler, which is now a private concern? Both are either slightly better or slightly worse off, depending on who you believe. Do you let them all fail? Do you save all three? Do you withhold life support from Chrysler because they are not publicly traded? If one of the big three fails, the pension liability would crush the Pension Guarantee Fund, as well as cutting benefits for hundreds of thousands of people. If all three failed, the repercussions would be staggering. Detroit would be the modern world's first urban ghost town.

This is it. There can now be no question that we are truly facing the worst economic crisis since 1929.

The difference between state capitalism (USSR, Cuba, Venezuela)and socialism is the same between the TV (centralization) and the web (cooperation)....

http://www.quinterna.org/lingue/english/who_we_are.htm

The cells of a living organism are differentiated and take part in the whole process. An organic whole always improves the efficiency of its differentiated parts, because only in this way any individual cell can give the best of its potentialities to the general organism (as Marx stated in his notes of 1843).

Organicity excludes organizing formalisms, when not essential. Today every social productive activity is centralized, planned, correlated; in short, it is in keeping with the technical standard reached by the ultramature capitalism. Socialized technique and work are natural part of mankind, and appeared in history since the highly organized ancient communities. Therefore, discipline and centralism do not come from a moral or statutory rule, but are the practical result of the organic relation between individuals as a whole and their aims.

FASCISM

Naomi Woolf in her You Tube video spells out clearly the historical ten steps to fascism.

By any definition, Dearly Beloved George, has finally taken the US into fascism.

Sadly all this intervention by the Fed and Treasury, although not actually fascism, has used all the classical propaganda tools of fascism. The outcome will be consistent with fascism. If we actually save the Republic it will be precisely on the terms of the Ruling Financiers, not in the interests of the democracy.

Sadly because the US has fallen so deeply and easily into this fascism I foresee bitter and violent reactions from the people as this fiasco slides down its expected graph to Depression.

We are already at financial Hells Gate but our beloved leaders assure us that we are not even in Recession yet.

Are we Stupid or what?? ---yes.

Graham