What to do with nationalised banks ?

All reasonableTM commentators now agree that nationalisation of big banks like Citigroup, Bank of America and Royal Bank of Scotland must take place soon, explicitly or otherwise. As I said at just before the second (failed) Citigroup bailout) banks like Citi are not only too big to fail, they’re too big to rescue with any of the half-measures that have been tried so far.

It’s obvious that “If it were done when ’tis done, then ’twere well It were done quickly” and cleanly, without any dodges designed to hide the reality of nationalisation. The longer these zombie institutions are allowed to run on public money, but under the existing discredited managers, legally answerable to the private shareholders, the bigger the costs the public will ultimately face.

Nationalisation would resolve a lot of the difficult questions around ideas such as the creation of a “bad bank” to hold all the toxic assets accumulated during the boom. That’s critical as long as policy is aimed at turning the troubled banks around while keeping them private, but it’s unimportant once all the debts and assets have been taken on to the public balance sheet. Once the big banks are nationalized, the government can take its time salvaging whatever assets are still worthwhile and preparing for the reconstruction of a private banking system under a completely new system of regulation, a task that is likely to take several years.

The big question is, what should governments do with the banks once they own them? Clearly, there’s an imperative for banks to start lending again, but there is no benefit in making yet more bad loans. And, right at the moment, credit-worthy borrowers are hard to find. The immediate concern must be to ensure that commercially sound loans aren’t being constrained by the need to bolster bank balance sheets. Then, governments need to consider whether some form of support for loans, such as interest rate subsidies or guarantees (secured against assets seen as having a long-term value that exceeds their current market value) should be part of the policy response to the recession. Such policies have plenty of risk associated with them, but the risks are mitigated a bit if the guarantor and the bank owner are ultimately the same (in this case, the public).

Obviously, this is not the kind of question economists have spent a lot of time thinking about until fairly recently. I don’t imagine many of us would have expected, a year ago, to be reading the Wall Street Journal castigating Henry Paulson and the Bush Administration for the (partial) nationalisation of the Bank of America. No doubt plenty of mistakes will be made. But there is no time for leisurely reflection here. As in 1933, the next hundred days will make a big difference, one way or another.

39 thoughts on “What to do with nationalised banks ?

  1. It’s to be hoped that the US & UK governments don’t adopt the naive good bank/bad bank approach used for many rescues in the past, i.e. put all the doubtful to dead loans into bad bank, held by gov’t as liquidator, and sell good bank back to the private sector at a distress price, allowing those who created the problem to get back into business.
    That said, the managers of the nationalised banks should, as you say, be able to get on with normal business rather than have to work as risk-averse receivers and managers.
    What other models have been shown to work?

  2. The commonwealth bank worked pretty well, and it looks like it will one of the few that won’t have to be brought.

  3. Question from a hopeless economist ( I have trouble trying to decipher a Telstra account), Mr. Quiggin, are Credit Unions and Building Societies, being I assume owned by the members, in peril as for the ‘big players’, no mention of them it seems in the ‘roll over and beg’, and if not, would that not seem to be an answer to the present “share holders and executive players, at all cost, first”.
    Seems, from my simplistic point of view, they must be doing something right.

  4. John, it seems like the US is in a real quagmire for the banks may have to write off a significant portion of the $US758 billion corporate debt due in 2009 making matters even worse.

  5. If they are broke then they should be put into Administration like any other business, not Nationalised. Nationalisation suggests that the current owners get paid something in compensation. Of course once they are in Administration the goverment could help out the creditors by buying the remainder at a fire sale price. However why bother handing the creditors too much dosh if there are willing buyers from the private sector that will keep the entity going.

    Administration not Nationalisation is the right course of action. The same goes for GM and Ford.

  6. I never did trust super – too many moguls decided how much they were going to take in fees and too many governments haggled about how much they were going to charge. I didnt trust shares because too many CEOs paid themselves too much, closed the companies down without warning and then set up under a different name after wiping out shareholders. I never could work out what the real value of shares was with pe ratios in the stratosphere and there was so much hype and bull circulated by the financial industry. Id have bricks and mortar any day and I suspect a lot of people thought like and who knows? Maybe the housing boom came from distrust of the financial markets and the reckless lending just followed the money and house swapping. Now that is an interesting thought.

    Id rather have the government nationalise the banks and get rid of the zombie management or at least put the vote to shareholders on what they would see as the most important changes needed.

    Ask the real owners what they want to see happen and what controls they want to see in place. If its executive salaries – then legislate it. This should have happened years ago. These executives are custodians of other people’s money and thats all. Tonight we have Turnbull on TV saying a budget deficit should be a last resort (what would we expect? Wake up Australia!). If they take that approach it wont be short and sharp. It will be deep and slow and the bottom will be a long time coming.

  7. After nationalizing all the banks, I propose the Ausralian government then pass a $10 trillion dollar stimulus package and resign itself to deficits for the next 20 years. The faster we move towards a system that weakens the economy, the better in my opinion. At least that way there is some hope for changes in opinion towards free-market economics. Apparently the current crisis, and the explanations being provided by free-market economists, have failed to convince. We need more economic pain before people start listening, and seriously dig into alternative ideas. Much more. With a bit of luck, we’ll experience a prolonged 12 year Great Depression II.

  8. Alanna at #7. Some pundits are suggesting that bricks and mortar (houses) in Australia are now grossly inflated in price. I find their arguments convincing. The excess of borrowing has driven up house prices to at least double what they ought to be based on fundamentals. People are now de-leveraging, retiring debt or going broke. Houses are not safe.

    Sukrit, I wouldn’t wish for a 12 year depression. However, I fear the coming depression will never end. The earth’s carrying capacity and its natural and environmental capital are now severely depleted. This is the Age of Consequences as some have termed it.

  9. As the Economist pointed out when it reluctantly advocated nationalization of Northern Rock as "the least worst option", it should be done quickly, and done in a way that the state as an investor gets due rewards for that investment. Neither was done in the late and socialized-risk privatized-profits models put in place by politicians on both sides of the Atlantic.

    It’s also worth a look at "Financial Development, Bank Ownership, and Growth. Or, Does Quantity Imply Quality?" from Harvard Business School Working Knowledge, which examines outcomes of nationalizing banks in India

    Credit markets with nationalized banks experienced faster credit growth during a period of financial repression. Nationalization led to lower interest rates and lower quality intermediation, and may have slowed employment gains in trade and services.

    Mind you, overenthusiasm for the service industry, especially the financial services industry (which made up 10% of US corporate profits in the 1980s, but 40% just before the you-know-what hit the fan, according to The Economist) could be seen as part of the problem.

    I’ve commented elsewhere

    So, the value proposition to society of the financial services sector has definitely altered with respect to productive economic activity. In the 1980s, at 10%, it was possible to argue that this sector was, at worst … commensal. Most pro-capitalists would support the proposition that 10% “cream off the top” is acceptable for a sector that makes other (productive) sectors more efficient.

    But with 40%, … it is clear that the financial services industry is a significant, if not the most significant, parasite of the body politic.

  10. Icono#9

    I know! I know! But where is there to go? I tried to sell but its already a bloodbath out there and I would be crystallising a loss (but only against prior gains I guess)! Ive rented it and locked it in for two years. Its a better return than where interest rates are going. Ill just have to hang on to my hat and maybe buy shares for the first time in my life to buy my way out of this pending doom in real estate. But someone decent in here would have to tell me what to buy. I wouldnt have a clue and I wouldnt trust those financial market spin merchants. To get them to sell even in a big crash like this you practically have to wring their necks because of trailing commissions.

  11. And which firms are not exposed to this mess? How many are hiding off balance sheet mammoth losses or trying to keep the banks at bay in a hurricane with a feather? Or will the mammoth losses just keep being quietly wheeled out every quarter for two years just when you think there is no more uglies to disclose? What about the next tranches of the exploding arms loans in the $US? Are they factored in by markets or yet to be lobbed like grenades? Its all double trouble.

  12. I cant help thinking that neo liberal right wing governments got us into this mess by deregulating the financial markets to the crazy extent they did. They turned a completely blind eye to growing malpractice. Is there lead in our water pipes?

  13. Can anyone tell me what the flaw in the video “Money as Debt” is?

    It shows that, because of interest, more money has to be repaid to banks than actually can exist. The system therefore demands endless growth. If that growth falters, the whole system falls apart as it did recently.

    If they are right, then the way out of much of the mess we are in would be simply to have our governments create money as a service to the people, rather than have private banks create money so that they can earn interest.

  14. Daggett – the system falls apart if the credit is all provided for consumption and produces no new wealth. If it is lent for the purposes of expanding productive capacity and wealth generation then the interest is paid out of the growth dividend.

    Both borrowers and lenders are pretty good at policing themselves because neither wants a situation where the debt becomes unpayable. So even if the debt is for private consumption it typically entails somebody having less but having it sooner.

    Unfortunately governments too frequently borrow to consume on a massive scale and then repay the debt our of general revenue rather than out of new created wealth. And because they can so readily print themselves out of debt or tax themselves out of debt, neither of which creates new wealth, the lenders still prefer to lend to governments. Of course both taxing and currency printing will affect lenders but it will do so irrespective of whether they lend to Mr Government or Mr Entrepreneur.

    In the USA if you add the official government debt to the impending social security liability (a consumption commitment that the government has implicitly made to the people) then the per capita debt is around US$200k. They have been on a massive binge. To suggest that these jokers should run banks is terrifying. At least when the private sector jokers stuff up their jobs get liquidated and their ability to command resources evaporates.

  15. #16, I haven’t seen the video, but I would say the causality is exactly the wrong way around. Because of growth, positive interest rates can be sustained indefinitely – this is a shorter version of Terje’s first point.

  16. “Because of growth, positive interest rates can be sustained indefinitely”

    Growth of what?

    Natural resources are finite. Positive monetary interest (in aggregate) requires growth in the supply of money, defined as debt.

  17. JQ says, “because of growth, positive interest rates can be sustained indefinitely”. That begs the question in the sense that I use begs the question. Can we sustain indefinite growth?

    It is clear that we cannot sustain indefinite growth in the world’s population. It is clear that we cannot sustain indefinite growth in the use of non-renewable resources. It is clear that we cannot sustain indefinite growth in food production. It is clear that we cannot sustain indefinite growth in physical infrastructure. Finaally, it is clear that we cannot sustain indefinite growth in energy use.

    Indefinite growth in human knowledge might be possible. Indefinite does not exactly mean infinite but rather such a long time that the end point need not concern us now. Indefinite qualitative growth in products through technological progress might also be possible.

    However, with the quantitative part of the economy in steady state (at best) and the qualitative part in a state of indefinite growth, what sort of adjustments to our financial system might be necessary?

    This might be a new style of economy (quantitative steady state and qualitative growth) and might need adjustments in the mechanism for the growth of the money supply. I pose the question. I don’t know the answer.

  18. Administration [of failed banks] not Nationalisation is the right course of action. The same goes for GM and Ford.

    But of course that will never happen for banks (though it may happen for auto manufacturers).

    Why? Because banks are seen to be qualitatively different from other businesses. On the face of it this seems absurd. I can sell my GM shares and buy Citibank and vice versa with the click of a mouse. On the face of it, there seems to be no difference between an investment in Citibank and an investment in GM.

    Yet, when these businesses fail, my positions in these companies is liquidated in vastly different ways.

    So far as capitalism is concerned, the world isn’t really flat. The company I part own when I happen to own Citibank shares is conceived as playing a central and essential role in the capitalist system.

    And the capitalist system is perceived by Bernanke, Paulson, Bush, and probably Obama, as being subordinate to a larger politico-cultural system of private property and the geographical division of labour and access to scarce cultural resources.

    When things are going well, agents of this kind of politico-cultural power proclaim that all property rights are sacrosanct. Yet when the crisis comes the property rights of many are sacrificed in the interests of the viability of a few.

    These principles are, of course, contradictory to the neo-liberal principles that are supposed to drive Bernanke, Paulson and Bush.

    In short, genuine neo-liberals are their dupes.

  19. nationalisation is just the bad beginning,

    then you discover the bank has a doppelganger or two,
    you cant see where the bank ends and the shadow bank begins,
    then you see the names of people who are up to no good in the folds of the shadow bank and you realised it used to funnel drug money and arms money and support warlords and blacklisted countries,

    how could you even begin to clean up this mess

  20. So what does all this mean?

    Clearly with all the bailouts etc – capitalists cannot run banks.

    Its a pity that it took so long for this to become obvious.

  21. the point is that some of these activities that banks have been engaged in simply should not occur at all because no-one can or should run them

    like derivatives, you cant regulate them, just outlaw the whole thing

  22. Thanks, Terje, Professor Quiggin, Ernestine Gross, Ikonaclast and possibly others.

    Nothwithstanding Terje’s points, the logic of the video “Money as debt” seems sound to me, particularly given that the case is supported by the likes of President Woodrow Wilson and J K Galbraith.

    Terje, I think the Bush Government is an extreme example. It is an example of a Government not held accountable to its own people for eight years, for which we can largely thank its privatised propaganda organ run by Rupert Murdoch.

    Naturally such a Government, put there to serve the most corrupt and cynical elite know to all of history in such circumstances would hardly have used its powers over money for the benefit of its people.

    Professor Quiggin, do you truly stand by your statement:

    “Because of growth, positive interest rates can be sustained indefinitely …”


    I would expect this of many of the free market ideologues who post to these pages, who have demonstrated that they have no understanding of the limits of our planet or the laws of physics, but not from one of Australia’s foremost economic dissidents.

  23. How to run nationalised banks?

    Short term: Run them according to existig laws and regulations. This provides a test of the existing laws and regulations and the underlying advice. This sounds tongue-in-cheek. But it is not meant to be. For quite a long time an awkward little question has been bothering my simple mind regarding the policy program of ‘privatise and regulate’. The question is: How can people of great integrity regulate (or manage) something which they don’t know what it is operationally? Alternatively, if they do have the knowledge then this implies a duplication of the acquisition and application of managerial knowledge, which does not seem to me to be cost effective.

    The above proposal provides an opportunity for law makers and regulators to find out – first hand – why the system doesn’t work.

    One hypothesis. The growth in the types of financial contracts during the past 20 years or more has been lawful. Banks and financial institutions are required by law to report via balance sheets. My hypothesis is that the law makers and regulators will find out – by running the banks themselves – that they can’t report all legally allowed financial contractual relationships in balance sheets. This leaves two policy options: Make all financial contracts (those written in currency units) illegal which do not fit into the balance sheet or develop an informtion system which allows the logical coexistence of the regulations.

    Furthermore, this experiment may give us all a better understanding of where the boundaries should be between private and public for the foreseeable future, given our current technology.

    Long term: If other policy objectives (eg sustainability, both ecological and social) aren’t to be forgotten, then it seems to me that we may have to look somewhere other than macro-economics. By macro-economics I mean the 19th century belief that ‘free markets’ are self-regulatory and Walras Law translates into the gold-standard; Keynesian economics as interpreted by Hicks, and Friedman and v. Hayek’s reinterpretation of the 19th century aggregate model. Centralised resource allocation has been tried and rejected. This leaves theoretical models which take into account finite natural resources (finite live of the earth), individuals, characterised by preferences and endowments and technological knowledge and a lot of interesting work, hopefully jointly with scientists.

  24. #25 Daggett, I was a little bit sloppy. I didn’t mean to say growth would continue indefinitely. I meant to say “As long as returns on investment are positive (roughly, as long as growth continues), interest rates will remain positive”

    Conversely, as the classical economists worked out, in a stationary state, interest rates will be equal to zero.

    As an aside, I’ve read a fair bit of JKG and never seen any statement like this. I don’t know about Woodrow Wilson, but I don’t see any reason to treat him as an authority on economics.

  25. Professor Quiggin,

    As shown in “Money as debt”, Woodrow Wilson stated words to the effect of that by having given banks too much power he had largely destroyed the future of his country.

    JKG said that the process by which banks created money was deceptively simple.

    I argue, and “Money as debt” argues, if it is so simple, why shouldn’t democratic governments, which are accountable to the people, take that power out of the hands of private banks and assume it for themselves?

    Surely we would have avoided the current financial calamity and many past financial calamities if that had been done?

    I am relieved to learn that you do agree, after all, that the planet is finite.

    Would you accept, given the parlous state of the world ecology, that we have already passed the point where further economic growth can be sustained?

    Surely, we need to change from a growth-based economy to a steady-state economy and, at that, one based upon considerably less consumption of natural resources than is now the case?

  26. daggett – I am not so sanguine re governments as if secrecy provisions are similar to today then similar problems will arise. That is, the people who control the flow of capital will make sure it flows to them. We need very open systems.

    re the steady state economy. Where do we set the steady state? It is possible there are too many people at the moment to set the economy/consumption at a comfortable level. We may need to find a way to reduce population. However creative and humane approaches to encouraging population decline are needed – I am not in favour of anything which penalises or stigmatises people for having lots of children. Perhaps changes which make having lots of children less desirable are possible eg taxation on house size, car size and so forth. There must be people with expertise in constructing population policy.
    On the other hand – there is so much junk produced and so much effort spent on stimulating demand for that junk that perhaps there is ample room to reduce consumption significantly whilst having high quality of life with the current population.

  27. Re #16. In reply to the question: “Can anybody tell me what the flaw in the video Money as Debt is?”

    There may be many flaws beside those which I can see:
    1. The history of the evolution of money and banking is strange in parts. It seems to me too much credit is given to the Europeans for the creation of banking and the story of the gold smith is surely an oversimplification. (Who is the intended audience?)
    2. The history about fractional reserve bank lending is certainly not new. I was taught this system during my undergraduate years – many years ago but I won’t tell you how many.
    3. The history is incomplete. It ignores the recent evolution of financial instruments by private corporations and individuals. This is an opportunity to bring in the inventiveness of the US.
    4. The idea that money is debt is not new either. For example, the video fails to acknowledge the thesis by Andreas Furche (2001), Macquarie University, which provides a uniform description of monetary objcts, their creation, circulation and destruction and the concept of all instances of money in this work makes the debt obligations on the issuer quite clear.
    5. The promotion of the idea of switching to zero interest and having only one issuer of debt, the government, seems to neatly coincide with what is happening in the U.S.
    (Point 5 is not a flaw but rather an observation only.)

  28. Roosevelts thesis concerning the relations between government ang big business may just come in handy at this time

    a) the existence of big business must be contingent on the proposition, that like government, it is a servant of the people.
    b) A corporations activities must be guided not on how much can be safely charged for services, but on how much can be given the people in return for as small a profit as will ensure good wages and welfare of workers and a moderate return on the investment.

    c) since capital is moral only when it is put to work for the common good, the piling up of huge fortunes as an end in itself is immoral and against the public interest.

    d) legislation should spring from the will of the people and not from the lobbies of special interest. Wherever privilege exists in legislation it should be placed under rigit public control.

    e) A franchise to exploit public resources, whether oil, water power or forest reserves, is a public trust, awarded to private interests under the definite stipulation that waste of resources must never happen, and the public never be charged more than a fair price for the development of what, after all, belongs to them.

    f) in any case of conflict between public and private interest, the latter must yield. If it will not do so of its own volition, it muct be persuaded to do so by legislative or executive actions.

    We seem to have, in the rush to de-regulate everything, acted contrary to every single one of these wise suggestions. I would say they apply very much to any relations between government and the nationalised banks and if they are not happy about it, let them all fail.

  29. f) in any case of conflict between public and private interest, the latter must yield.
    If it will not do so of its own volition, it must be persuaded to do so by legislative or executive actions.

    woooohahahaha, oh dear, i think i peed my pants

    it just brings me back again to the recurring nightmare i have, brought about by the orwell essay involving the sophistication of weapon systems and the relative power of the people in class wars,

    we, my friends, are in deep shit

  30. I cannnot alas Daggett. I am quoting direct from a very yellowed hardback book (page 86) published in 1942 by Peter Davies Press, London, called “Roosevelt – World Statesman” by Basil Woon which I found in second hand bookshop. I like collecting any old interesting ones but this happens is the the oldest.
    It has a hand written inscription inside “from Marcus R Barlow, Camberwell” “from Tall Timbers, Xmas 1944”

    Well Ill go off on a sidetrack because this gets interesting – Marcus Barlow was an reasonably well known Melbourne arhitect and I found this on the web

    The sparkling new straw houses, built in a strip along Maidstone St, Altona, were designed by one of Melbourne’s leading architects, Marcus Barlow. It is a mystery to me why a ‘society’ architect like Barlow, who was educated at Brighton Grammar School and lived in a mansion in Camberwell, concerned himself with straw workers’ cottages in outlying Altona. Barlow designed notable city buildings like the famous Manchester Unity Building on the corner of Swanston and Collins St, Melbourne, the Edments Building in Adelaide, the Victorian Insurance Building in Perth, and many other noteworthy structures.

    Anyway – I like Marcus R Barlows taste in books.

  31. Alanna,

    Nevertheless, thanks. Thanks, to you an electronic copy of those particular very sensible ideas of Roosevelt’s now exists.

    There are some references to Bail Woon’s book on the web including “A drink’s French connection”.

    Sounds like Marcus Barlow had a lot going for him in being willing to apply himself to what would have been considered by many as the less prestigious concerns of providing workers’ dwellings.

    Ernestine Gross, thanks for your response.

    It seems to me that some of the omissions you mention would be justified in the interests of brevity.

    There is a lot in there to get my head around. For example, how is it that the Bush regime, utterly devoted to serving a corrupt sociopathic ruling elite at the expense of ordinary Americans and the rest of the world would adopt measures that, on the face of it, appear to be socialist?

    Whatever the reason might have been, it could not have been to willingly serve the common good.


    Your post raises a lot of issues which cross my mind constantly. In fact, I think we have passed the point where we not only should we be applying moral pressure to limit the size of families, but we should also begin to contemplate more coercive means to limit the size of families, at least beginning with financial disincentives as you have suggested.

    Your point about the creation of needless demand is a good one and yet another illustration of the utter irrationality of our ‘free market’ capitalist system. Have you read Sharon Beder‘s “Consumerism – an Historical Perspective”?

    It shows how in the 1920’s at a point when rising workers’ productivity would have made it possible to reduce the working week, the US ruling elites, instead colluded behind the back of the people to convince workers, through extensive propaganda campaigns, to buy more goods and to continue working longer hours. This, of course, has continued right up to this day. This makes complete nonsense of any suggestion that a desire to excessively consume the earth’s natural resources was natural on the part of ordinary people.

    However, we have reached the point where simply removing that artificial additional demand may not be sufficient to solve our problems, but it would certainly be a good start.

    We can only hope to solve the problem by first stabilising our population and then by allowing it to decline naturally, before the limits of our natural world do it for us.

    Anyone who holds that we can afford to be, in any way, complacent in the face of the peril of human overpopulation is dangerous and reckless, even more so those who actively seek to increase the population of the world or any country within it.

  32. Well Dagget – there were 3 more points listed under Roosevelts thesis concerning the relations of government and business.

    f) In general, private ownership of utilities should be discouraged in favour of public ownership. In some cases private ownership may be publicly financed, in order to prevent undercover control of utilities by men who have none but a purely financial interest in them.

    h) Money does not of itself entitle its owner to any legislative privilege. But if the money can be shown to be working for the good of all, then its possessor may be rewarded by privilege. But all privilege is and must be a prerogative of the people. (italics emphasis on last sentence)

    i) The transactions of all public companies must always be open to inspection and, if necessary, approval of the public, through their appointed representatives.

    And in a message to Congress in April, 1938, asking for a revision of the Sherman anti-Trust law, the President wrote that the aim of measures he proposed was “to preserve private enterprise for profit by keeping it free enough to utilise all of its resources of labour and capital’ then he added “The concentration of power in private hands today is without equal in history. The one lesson in events abroad…is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than the democratic state itself. That, in essence is Fascism.”

    I think we have equalled it some 70 years later.

  33. So Woon was partially responsible for the invention of the side-car cocktail? That is funny Daggett!

  34. Pr Q says:

    All reasonableTM commentators now agree that nationalisation of big banks like Citigroup, Bank of America and Royal Bank of Scotland must take place soon, explicitly or otherwise. As I said at just before the second (failed) Citigroup bailout) banks like Citi are not only too big to fail, they’re too big to rescue with any of the half-measures that have been tried so far.

    We “reasonable commentators” can all agree that bank nationalisation is the sensible policy option. Unfortunately politics, understood as the distribution of spoil, usually trumps policy until all other survivable alternatives are exhausted.

    The simplest reason why Obama will not nationalise the zombie banks boils down to money. Not the Treasury’s money, theres trillions of dollars they can pixal up at the drop of a keypad.

    I mean the money at stake for owners of the Wall Street banks and officials of the Democratic Party.

    Over the past half decade or so the DEMS have been the biggest recipients of political donations from Wall Street. The LA Times reports on the big turnaround in Wall St political sympathies:

    Hillary Rodham Clinton and Barack Obama, who are running for president as economic populists, are benefiting handsomely from Wall Street donations, easily surpassing Republican John McCain in campaign contributions from the troubled financial services sector.

    It is part of a broader fundraising shift toward Democrats, compared to past campaigns when Republicans were the favorites of Wall Street.

    For now, though, Sen. Clinton of New York is leading the way, bringing in at least $6.29 million from the securities and investment industry, compared with $6.03 million for Sen. Obama of Illinois and $2.59 million for McCain, according to the Center for Responsive Politics.

    Those figures include donations from the investment companies’ employees and political action committees.

    ANd of course Wall St donating to the DEMs does not imply that the MoUs have had a sudden Left-wing change of heart. Rather it implies that the DEMs are available to the highest bidder, of rather Right-wing persuation.

    Maybe that explains why Obama chose Larry Summers, the economist most identified with financial market liberalisation over the past generation, to master-mind the bail out plan.

    When you think about it Wall St donating to the DEMs makes a lot of sense. After all the REPs will do Wall Streets bidding for free. So if you have a political donation budget it is most effective to give it to your natural enemies, to hedge your bets. That sort of logic would appeal to traders.

    In return for political donations the Wall St banks get to keep private ownership of the banks and their bonuses. So when the stock market recovers they reap a massive capital gain and resume business as usual.

    Whats not to like about that deal?

    Nothing except it does take some of the gloss off Changey-Hopey Obama. Like I said from the get-go, that dude plays a mean Cool Hand.

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