"Dissembling, I have concluded, is hard-wired into the banks’ DNA."

From Alphaville:

"Nationalisation linkfest Posted by Sam Jones on Jan 20 11:48. 6 comments.

To nationalise or not to nationalise?

The UK government has shown its hand. TARP II is underway in the US.

If the latest gamut of policy responses don’t work - and there’s plenty who say they won’t - then nationalisation of banks is very much the only option left. More…

To nationalise or not to nationalise?

The UK government has shown its hand. TARP II is underway in the US.

If the latest gamut of policy responses don’t work - and there’s plenty who say they won’t - then nationalisation of banks is very much the only option left.

With that in mind, FT Alphaville has rounded up a selection of the pro-nationalisation views currently on offer . ( AM I LISTED? )

Kicking things off is Paul Krugman, who says nationalisation is preferable to a zombie banking collapse:
…many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking… Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal - and that we’re about to get another financial rescue plan that fails to do the job.

Exactly what Krugman means when he refers to voodoo accounting at the banks is fleshed out by analysts at RBS - according to whom, the UK’s banks are “technically insolvent”. (via The Independent, via Naked Capitalism):

Analysts working for RBS, one of several British banks to have received emergency funding from the UK Government last year, told the City that “the domestic UK banks are technically insolvent on a fully marked-to-market basis”.

The warning does not mean British banks are about to go bust, because the assessment is purely theoretical, and RBS said the position was “not unusual at this stage in the economic cycle”.

Technical insolvency is not necessarily grounds for nationalisation and as the analysts note, is not wholly unusual in a downturn. Then again, we nationalised Northern Rock. Edmund Conway, the Telegraph’s economics editor says there’s little difference in some sense between the Rock and RBS:
Pragmatically speaking, there is little to separate RBS and Northern Rock in terms of their asset books or control structures, nor indeed their absolute reliance on the Government for support. Should the stream of losses continue at even a fraction of this rate, the company looks a banker to return to the Government for further capital injections and, ultimately, nationalisation.

Looking at the picture more broadly, the LSE’s Willem Buiter argues that bailouts simply don’t work : in fact, they actually incentivise banks to stop lending:
But I believe that costly partial state ownership and the fear of future state ownership (partial or complete) are themselves discouraging banks from lending… If a bank has no option but to take the government’s money, it will try to repay it as soon as possible - to get the government out of its hair. Such a bank will therefore be reluctant to take any risk, including the risk of lending to the non-financial private sector. Such a bank will hoard liquidity (sometimes in the form of deposits/reserves with the central bank) to regain its independence from the government. Still independent banks will hoard liquidity to stay out of the clutches of the government.

And Hans-Werner Sinn, Ifo president provides some concrete German examples to back-up Buiter’s points:

Faced with the choice of reducing business or seeking to return to previous volumes by accepting government equity, bank executives will opt for the first alternative in order to avoid cutting their own salaries.

With such arguments against bailouts in mind, nationalisation is probably, then, the lesser of two evils, Felix Salmon suggests over at Portfolio.com:

Given how messy all of these alternatives are, why not simply go down the nationalization route? It’s transparent and easy to understand: if a bank is insolvent (and the FDIC is good at making those determinations), then simply nationalize it. That’s what the Swedes did, and that’s what we should do too.

Steve Waldman at interfluidity fleshes out the Swedish model: which involved nationalising the two nations largest troubled banks and then, reprivatising them later:

The state took full ownership and control over Nordbanken in 1992, actively cleaned it up, and eventually reprivatized it. During the crisis, Nordbanken purchased Gota, effectively nationalizing the smaller bank. It is true that only these two banks were nationalized, and a Swedish government description of the crisis is careful to note that, as a matter of policy “the state would not endeavour to become an owner of banks or other institutions.” But Nordbanken alone had an asset base of 23% of GDP. To put that in perspective, in US terms that’s almost as large as Citi and Bank of America.

And for a more first-hand exposition of the Swedish experience of bank nationalisation, it’s worth consulting this 1997 Jackson Hole speech by Urban Bäckström, former governor of the Swedish central banks. The crucial thing seems to be that banks were forced to present a full account of expected losses and writedowns:

This clarifies the extent of the problems and the support that is required. Provided the authorities and the banks make it credible that no additional problems have been concealed, this procedure also promotes confidence.

Joshua Rosner of Graham Fischer says that like Sweden, the best bet for the US (and the UK) would then too be for banks to be forced to writedown all their suspect assets and then have equity bought by the government. Writedowns and then nationalisation.
Faced with a similar crisis in the 1990s, Sweden forced banks to write down bad loans, then the government injected liquidity into the system and profited from the upside after taking equity stakes in the banks.

Interesting that Brown is calling for banks to “come clean” then.

Which brings us perhaps to the current UK situation. And whether, as says the Economist we’re on a course of “creeping nationalisation” anyway :

Despite repeated government claims it is not interested in running banks, creeping nationalisation may be on the way:

There is little in the new package to give banks the incentive to put their profit motive aside and help to reflate the economy. RBS and Lloyds have some private shareholders who could sue if they suspected their interests were being abused… Unhappily, the government’s new measures do not dispel the uncertainty that continues to weigh on banks’ balance sheets.

The government … has chosen a slow and complex route.

A “slow and complex route” that the Economist’s Free Exchange blog is meanwhile, quite explictly no fan of:

Time to quit mucking around and make with the nationalisations.

Finally, if it’s coming, then make sure it’s done properly says John Hempton at Bronte Capital in his blog post Nationalisation after due process:
What I want is extreme government action (nationalisation) but with a process to ensure that existing property rights are honoured. I want the benefits of nationalisation (that it works) without the costs (that it is seen to be arbitrary to capital providers).

Update: For further reference, FT.com now has a very interesting video of PE chief Guy Hands’ thoughts on nationalisation and Phillip Stephens’ op-ed (”Shoot the bankers, nationalise the banks”) is an excellent read:

Dissembling, I have concluded, is hard-wired into the banks’ DNA."

A very useful brief.

he feared that the citizens "have lost sight of the quality of all religious sects in the eye of the Constitution."

Steven Waldman with an excellent post:

"Why The Inaugural Prayers Have Become Less Inclusive Over Time

Friday January 16, 2009

In 1949, the year of Harry S. Truman's inauguration ceremony, America was a much less tolerant and diverse place. It would be another decade before Americans would be comfortable electing a Catholic president. Jews were still excluded from the upper echelons of government and business. The levers of power were held by Protestants, who made up the vast majority of the population.

But there on the podium with Harry Truman, to deliver prayers, were a Protestant minister, a Catholic priest and a rabbi.

Flash forward to 2001. America is a much more diverse nation. Protestants make up barely half the population. We've had a Catholic president and numerous Catholic Supreme Court justices. Jewish politicians and businessmen have risen to the highest levels of government and finance, and increasingly Islam is being treated as a mainstream American religion.

Yet at that inauguration, of George W. Bush, there were two clergymen, both Protestants, and they both preached with enthusiastically Christian language. Rev. Kirbyjon Caldwell prayed in "the name that's above all other names, Jesus the Christ." And Rev. Franklin Graham asked the American people to "acknowledge You alone as our Lord, our Savior and our Redeemer. We pray this in the name of the Father, and of the Son, the Lord Jesus Christ, and of the Holy Spirit."

In fact, if one looks at the roster of clergy and the prayers they gave over the past 70 years, it appears that American inaugurations have actually become less inclusive and pluralistic over time.

Including the two prayers at Barack Obama's inaugural, 12 prayers will have been delivered at inaugurations since 1989. All of them will have been delivered by Protestants. By contrast, in the previous 48 years, fewer than half of the prayers were offered by Protestants. Every president prior to George H.W. Bush had a Catholic and more than half also had a Jewish or Greek Orthodox clergyman.

The country has gone through, in effect, three phases.

In the first, presidents used a religious-diversity model. From 1937, when the first inaugural prayer was offered, until 1985, the presidents (with one exception in 1981) had clergy of different faiths or denominations up on the podium.

During these years, the Christian prayers were not watered down in any way. They often prayed in the name of Jesus Christ. But because there was a rabbi on the platform, no one could be accused of giving a government imprimatur to one particular religion. At Truman's inaugural, Rev. Edward Hughes Pruden ended his prayer, "Bestow upon us, our Father, the happiness which is reserved for that nation whose God is the Lord, through Jesus Christ, our Redeemer, we pray, amen."

It easily fit the spirit of the Constitution because he was followed by Rabbi Samuel Thurman of the United Hebrew Temple of St. Louis. "O Lord, make us worthy of all Thy blessings, to the end that both leader and people may continue to find favor in Thine eyes, and so live and serve that Thy glory," Rabbi Thurman intoned.

Over time, the president reduced the number of clergy on the podium In 1977, Jimmy Carter enlisted two rather than four clergy, prompting protests from Jewish and Greek Orthodox groups. Ronald Reagan used just his personal pastor in 1981, though he returned to the four-person prayer scrum in 1985.

Then in 1989 and 1993 we tried what might be called the "America's pastor" model. One man, the Rev. Billy Graham, offered both the invocation and benediction. He pulled it off by using broadly inclusive language. In 1989 he referred just to "God" and in 1993 he declared: "I pray this in the name of the one that's called Wonderful Counselor, Mighty God, the Everlasting Father and the Prince of Peace." Note, too, that he used the word "I" rather than "we," which would have assumed all in the audience were Christian.

Mr. Graham, who served as a spiritual adviser for several presidents, at that point seemed to understand that if one doesn't have a diversity of voices, then the remaining clergy have to, through careful construction of their own prayer, speak for all Americans.

Ironically, the shift to this model may have been driven in part by America's increasing diversity. As more and more faiths--including non-Christian religions--grew, it may have seemed impractical to have a representative cast of clergy. The podium could buckle under the weight of the holy men and women if all substantial faiths were given voice. A single, acceptable preacher could serve all purposes, and, luckily, Mr. Graham had attained such broad acceptance that he could play that unusual role.

There were likely political factors, too. George H.W. Bush was viewed suspiciously by conservative evangelical Christians, then a growing political force. By choosing Mr. Graham, Bush could burnish his Christian credentials. Bill Clinton had his own reasons for keeping Mr. Graham as the star of the spiritual show in 1993. The new president was viewed by religious Americans as a liberal of dubious morality. By embracing Mr. Graham, he could highlight his Bible belt roots and faith.

Next came the Protestant-only model. In 1997, Mr. Graham was the only pastor at Bill Clinton's second inaugural, but this time he made it a fully Christian prayer, ending it "we pray in the name of the Father, the Son and the Holy Spirit."

His son, Franklin Graham, then took it a step further in 2001, urging Americans from the balcony of the U.S. Capitol to acknowledge Christ "alone" as their savior. Why did Franklin Graham go this far? To some degree he and Mr. Caldwell probably just prayed the way they normally pray without fully realizing their special roles as the only clergy on the stage that day.

But the politics of evangelicalism had changed, too. By 2001 conservative evangelicals had become a powerful force in American politics, instrumental to electing George W. Bush to the presidency. Part of the evangelical identity, increasingly, was a pugnacious sense that they were being persecuted and should not be cowed into suppressing their faith. "I knew stating that there is no other Name by which an individual can be saved grate on some ears and prick some hearts," Franklin Graham wrote about his inaugural prayer in his book, "The Name." "However, as a minister of the gospel, I was not there to stroke the egos of men. My role was to acknowledge the all powerful One and please Him....I want to please my Father in heaven no matter the cost." The country's growing religious diversity left evangelical Protestants feeling more defensive and inclined to strut their theological stuff.

When he was criticized by some civil libertarians after the inaugural, Mr. Graham wore their criticism as a badge of honor and used it to warn Christians about their marginalization. "The response to the inaugural prayers is additional evidence of a disturbing trend in American life: Christians who use the name of Jesus and insist that He is 'the one and only way to God' are increasingly viewed by many in the liberal media as narrow-minded religious bigots who represent a threat to the rest of society," he said in his book. Against this tide Franklin Graham had bravely stood, achieving at least one small victory. "The media attention span is short, but at least for a few days in early 2001, the Name Jesus was heard in public discourse as something other than a curse word."

Both the religious-diversity and America's-pastor models probably fit the spirit of the Constitution and the style of the founders. But the third model, the Protestant-only model, doesn't follow those rules, giving clear preference to Christianity by having only clergy who pray in Christ's name.

Barack Obama mostly seems focused on ideological rather than denominational diversity. He chose Rick Warren, who opposes gay marriage, and then added Gene Robinson, the gay Episcopal bishop from New Hampshire, to pray at a morning service. He's also reportedly going to have a full range of faiths--including Muslims and Jews--at the prayer service the next day. But at the high-profile, official event--the swearing in--there will be just Rick Warren and Joseph Lowery, both Protestants.

Michael Newdow, the atheist activist known for his lawsuit to strip "under God" from the Pledge of Allegiance in 2004, filed a lawsuit in U.S. district court on Dec. 30 to get the prayers dropped from the inaugural ceremony, and also to block the president from including "so help me God" in his oath.

Mr. Newdow and the other atheist plaintiffs argue that, far from unifying the nation, the acknowledgement of God (not to mention the articulation of Christian theology) "do not solemnize those occasions at all" if you're an atheist. "On the contrary, they ridicule public occasions, making a mockery of the wonders of nature and of human achievement....Specifically, the 'real meaning' is that Atheists are 'so inferior and so degraded' that their religious views warrant no respect....Under the Establishment Clause, Plaintiffs have a right to view their government in action without being forced to confront official endorsements of religious dogma with which they disagree."

However, the courts have long accepted that having religion at public ceremonies is appropriate--though Mr. Newdow's argument has been strengthened by the actions of Messrs. Graham and Caldwell.

If asked about inaugural prayers, the founding fathers probably would have disagreed with each other. We can surmise this because of their disagreement over presidential "prayer proclamations." In the early years of the country, Congress repeatedly asked the president to issue official prayer proclamations, especially to give thanks. In 1789, George Washington published a deeply religious--albeit not overtly Christian--prayer declaring, "We may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations, and beseech Him to pardon our national and other transgressions."

John Adams did so as well, and made it more explicitly Christian. In a Thanksgiving proclamation issued March 23, 1798, Adams asked for "His infinite grace, through the Redeemer of the World, freely to remit all our offenses, and to incline us by His Holy Spirit to that sincere repentance and reformation."

Adams was attacked for inserting religion too much into the public sphere and later concluded that his prayer proclamation had "allarmed [sic] and alienated" so many people that it led to his defeat in the election 1800.

James Madison disliked Washington's and Adams's prayer proclamations. Madison's primary argument was not that mixing of church and state was bad for government or religious minorities or atheists. It was that it was bad for religion. Adams's prayers, Madison wrote, brought "scandal [to] religion as well as the increase of party animosities."

He also believed presidents leading the nation in prayer violated the spirit of the Constitution because they "they seem to imply and certainly nourish the erroneous idea of a national religion." When Americans began urging him to issue his own prayer proclamations after he became President, he said he feared that the citizens "have lost sight of the quality of all religious sects in the eye of the Constitution."

When Madison did eventually cave in and issue a prayer proclamation during wartime, he offered a unique twist. Rather than calling the nation to prayer, he designated particular days on which different religions could devise prayers of their own, if they wished, "according to their own faith and forms."( I'M WITH MADISON. )

These prayers were specifically coming from the president, so in one sense that's a greater infringement on the First Amendment than having a clergyman offer a prayer in the president's presence. But the prayers Madison criticized were far less overtly sectarian than the ones offered at recent inaugurations.

Finding the right balance was no easier for Madison than it has been for modern presidents. As Messrs. Warren and Lowery take the inaugural stage next week, they'll be trying to achieve two different missions. They are Christian ministers and need to stay true to their faith. But they are the only clergy on the podium and therefore must represent all Americans. If they can't restore the proper balance that existed before 2001, then their prayers will--and should--increase the drumbeat to get rid of inaugural prayers entirely.( I AGREE )

Reprinted from The Wall Street Journal Weekend edition."