Tim Geitner said today, in response to questions about the prospect of bank nationalization, that the Treasury is considering a range of options with the intent of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he told reporters.

Well, it all depends on what "private" means. The fact that the Treasury has not sought voting rights or outright control over day-to-day operations doesn't mean the banks are still "private." Nor does it mean that much remains of the former "system" to be preserved. The Treasury now owns preferred shares and warrants of many of the banks that have received bailout money. These can be converted into common stock and cashed out whenever the government wants. Technically, the Treasury has a controlling interest in many of these banks if it wanted to exercise that interest. As to many other banks, the Treasury could easily gain a controlling interest; their remaining common shares are worth so little now that Treasury could buy just buy them up. In addition, the Treasury, as well as the Fed, is monitoring these banks carefully, and the banks are highly sensitive to what Treasury and Fed officials want from them.

Read more »

Why is this recession so deep, and what can be done to reverse it?

Hint: Go back about 50 years, when America's middle class was expanding and the economy was soaring. Paychecks were big enough to allow us to buy all the goods and services we produced. It was a virtuous circle. Good pay meant more purchases, and more purchases meant more jobs.

At the center of this virtuous circle were unions. In 1955, more than a third of working Americans belonged to one. Unions gave them the bargaining leverage they needed to get the paychecks that kept the economy going. So many Americans were unionized that wage agreements spilled over to nonunionized workplaces as well. Employers knew they had to match union wages to compete for workers and to recruit the best ones.

Read more »

The new administration and Congress are busy preparing the second tranche of bailout money for Wall Street -- TARP II -- at the same time they're developing a new set of regulations to make sure Wall Street doesn't get into this kind of mess again. But will the old politics intrude?

Wall Street is one of the biggest campaign contributors to both parties, and the Street's contributions have increased considerably over the last several election cycles. According to the Center for Responsive Politics, by the 2006 elections, Wall Street contributions to the Democratic Party had caught up with its rising contributions to Republicans.

Read more »