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Is The Gop Outflanking The Administration On Banks?

The Financial Times has two interesting pieces up about the banking crisis. The first is a write-up of a speech Alan Greenspan gave today. Key point:

The US administration will have to go back to Congress for more money to recapitalise the banking system, Alan Greenspan, the former chairman of the Federal Reserve, said on Tuesday. ...

He said US banks needed more capital to replenish hundreds of billions of dollars in as yet unrecorded losses and to add an "additional buffer" of capital equivalent to several percentage points of assets.

If the International Monetary Fund's estimate of unrealised losses is correct, his formula would imply a total capital need in the region of $800bn-$900bn (560bn- 630bn). A large share of this would probably have to come from the government, which has only $100bn- $150bn left in uncommitted Tarp funds.

Greenspan also made a point I've tried to make here before, which is that, unless you fix the banking system, the stimulus is just a temporary solution. A recovery can't sustain itself without functioning credit markets.

The second FT piece is about growing Republican support for nationalization. It's built around an interview with Lindsey Graham, who made similar, if slightly less explicit, comments this past weekend:

Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be "on the table". ...

"You should not get caught up on a word [nationalisation]," he told the Financial Times in an interview. "I would argue that we cannot be ideologically a little bit pregnant. It doesn't matter what you call it, but we can't keep on funding these zombie banks [without gaining public control]. That's what the Japanese did."

The man has a point.

What's still not clear to me is how the Obama administration feels about this. On the one hand, the FT says, "Administration officials acknowledge that the rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalisation of some weak banks." On the other, Geithner has said that governments make lousy managers of (previously) private assets. Those statement are certainly reconcilable--they suggest the administration wants to avoid nationalization if possible, but realizes it may not be. But some elaboration would be nice.

--Noam Scheiber