Nationalize the Banks? Forget It

Those of us who had anticipated a de facto nationalization of the banking and finance sector of the U.S. economy, a distinct possibility after the meltdown last fall and the government's bailout reaction, may have to rethink our scenarios. And happily so.

With the announcement that Citigroup will pay back $20 billion in bailout loans and that Wells Fargo will pay back $25 billion — following closely on Bank of America's announcement that it will pay back $45 billion — the nine major banks that took bailout money in October 2008 will have repaid or will be in the process of repaying their federal loans.

Some of the smaller banks that took TARP money repaid the loans months ago.

Perhaps they will all value their independence from the government a little more in the future.

Most of the commentary on the big banks' eagerness to pay the money back and get out from under the federal thumb has focused on the government's control of pay and bonuses for top executives — a stricture that's already complicating Bank of America's search for a new CEO. But it was more than limits on pay that bothered the banks. They were dying the death of a thousand cuts of micromanagement as government bureaucrats dictated how they should operate.

The government's desire to dictate policy to private businesses was perhaps symbolized by President Obama's summoning the heads of major financial institutions to the White House last Monday to give them a tongue-lashing about not making enough loans to jump-start the economy. This was objectionable, even obnoxious, on several levels.

In the first place, the president placed sole blame for last year's financial collapse on private financial institutions.

While some of them do bear a portion of responsibility, there is little question that government policies and actions — Fannie Mae and Freddie Mac guaranteeing risky financial instruments, the Federal Reserve flooding the economy with cheap money, pressure from regulators to make loans to risky borrowers and much more — bear primary responsibility for the meltdown.

President Obama didn't come close to acknowledging even a minor role for the government in causing the crisis.

In the second place, after an orgy of irresponsible lending urged on by government, banks should be expected to be more conservative in their lending policies, and such a correction is healthy for the long-term prospects for economic growth. The lending pendulum may be swinging a little far in the direction of strict standards, but that will be corrected over time. Institutions risking their own money are more likely to make sensible adjustments than is the government, which can and has escaped responsibility for its own foolish actions repeatedly, simply passing the cost along to taxpayers.

President Obama's impulse to pressure the banks into looser lending policies — the very kinds of policies that precipitated the crisis in the first place — shows that government would almost always rather have false economic growth built on sand than solid growth built on real prospects for profit and production.

It will be healthy if bank officials and others who run private businesses remember the government's impulse to micromanage and bully them into imprudent decisions the next time they're tempted to let the government bail them out after they make mistakes — as, being human, they inevitably will.

The next stage of America's economic growth needs to be built on the conviction that no institution is "too big to fail."

REPRINTED FROM THE NORTHWEST FLORIDA DAILY NEWS.

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