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Mats Kaarbø

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Central Banking or Nationalized Banks?

In the aftermath of the bubble burst in '08, Iceland took a radically different path than the United States after their financial crisis and nationalized the banks, threw some people responsible for the crash in jail and bailed out the homeowners instead of worrying about only bailing out the banks. And now they're coming back and their economy is growing again... http://goo.gl/QuKGA

When the banks in Norway declined in 1992, the government simply nationalized them (instead of bailing them out leaving the tax payer to pay the bill) which gave the banking business a breather and was ultimately beneficial for its citizens, because the banking business returned to more traditional banking values, though it only was for a short period of time.

So, in terms of public prosperity is there any merit left to keep the current central banking system, with many private banks and one central bank, instead of nationalized banks?

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    Oct 31 2012: i would suggest to frame the question in a different way. as it is now, and often, framed is whether we want the government to fix or manage the banking sector (education, healthcare, etc) to better serve the people.

    but one must understand that this fixing or managing consists of banning voluntary interactions between individuals. every time the state comes in to establish something like the FDIC, or prescribe certain types of contracts, or downright socializes banks, it means that some voluntary interactions will be banned. there will be a person and a bank that want to engage in some cooperation that would be beneficial to both, but they can not.

    it is not theoretical. the banking sector is so heavily regulated, it almost does not matter if we nationalize all. it makes little difference. but it is not good. it means that the banking sector can not work as people demand it. and since it does not function, the government, of course, proposes more interventions to fix it.
    • Oct 31 2012: "but one must understand that this fixing or managing consists of banning voluntary interactions between individuals."

      So? The law gave them the right to incorporate (otherwise shareholders would have their homes impounded whenever a company they invested in goes bankrupt) and a legal system to battle out their differences and the law can take some of those rights away.
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        Oct 31 2012: and how do you plan to fix one silly law with another silly law?

        in my world, companies would not have special privileges granted by law. only people can have rights, property or responsibility.
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      Nov 1 2012: "the banking sector is so heavily regulated, it almost does not matter if we nationalize all. it makes little difference. but it is not good. it means that the banking sector can not work as people demand it. and since it does not function, the government, of course, proposes more interventions to fix it."

      But that scenario contradicts what happened in Norway, right? The nationalization was that which created the turning point for the Norwegian market, where the banking business got a breather and went to more traditional banking values focusing on what banks should be doing; deposits and loans, not push structured products and investment in dubious real estate projects on widows and orphans, which was the reason the banks declined in the first place.
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        Nov 1 2012: at least you claim so. but of course you don't know what would have happened if the banking sector would have been truly free.

        in a free market setting, investment banks have to invest, otherwise where their money is coming from? but in a free market setting, there is not even need for investment banks, the economy does fine without them as well. only in a state-controlled environment it is possible that banks soak up capital, and channel them into non-productive uses.
    • Nov 1 2012: krisztian: I almost think you are not talking about the US, but some other country . You believe the Banks are "Heavily Regulated"?!~ Please. The main regulation is by the inaptly named "Federal Reserve", a Private Cartel of Bankers, who run not only our banking system, but apparently our government as well, since, although the taxpayers are expected to foot the bill for their various mistakes, but are not allowed even an audit of how they spend the money. The Fed is nothing but a scam for to cover for, and benefit , bankers. Just like President Andrew Jackson said, so long ago.l If you want some more information about this, just see some of Congressman Paul's videos . And I have news for you, whatever they had been doing up to the repeal of the Glass-Steagal Act,, the big Banks have more or less abandoned traditional banking, since their new swindles , like Derivatives, are much more lucrative (for them).,
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        Nov 1 2012: that "private cartel" is run buy a guy appointed by the state. and in addition to the fed, there are hundreds of regulations and interventions in the financial sector. start with the fdic, fannie and freddie, housing programs, regulated reserve ratio, fiat money, to the direct regulations you need to meet if you want to create a bank, plus all the laws regulating every industry, like the employer protection laws and customer protection laws.

        somewhere in the 19th century, some law (the content of which i don't remember) was made for any banks having at least six clients. my point being, there were banks with less than six clients. local banks for a small town of a few hundred inhabitants. can you imagine in today's environment that you decide to found a bank, you buy a safe, and start to put stickers around the city to advertise your services? do you think this would be legal? that is an unregulated banking sector. compare it to what we have today.

        about derivatives. there is a reason why it is so popular. the reason is that they are good. derivatives are the biggest invention in the money markets since the invention of money itself. there is absolutely nothing wrong with derivatives. in fact, derivatives are so good, they made available for the government to inflate a huge housing bubble in a way the public didn't notice. then when it burst, the very tool they used became the scapegoat.
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          Nov 1 2012: Delusion by repetition:

          Banks = good
          Governments = bad
          Regulations = bad

          If banks are not good, its not them, it's bad regulations arranged by bad governments.

          And because banks and companies are the guardian of humanity by their intrinsic nature and all intentions, we do not only have to blame the government for their unfair and evil regulations, we better get rid of them at all!

          For our own sake, for the sake of humanity, get rid of all governments, all regulations and free what is best for all of us: A free global market without any regulations whatsoever!

          Let the invisible hand guard all of us, our planet, our nature, the sick and weak and the poor and it won't take long and all our problems are finally solved and our future becomes a stable, bright and thriving promise!

          What do we need democracy for? It's a pain, because it will produce governments, which will produce all this needless and dangerous regulations which has kept us all this centuries from our capitalist paradise!

          And of course we need derivatives, they are good, all of us need them, because they provide us security against any change in the market. They help us to calculate our future. They offer us a nice playground for gambling, so that we finally get to use all our cristal balls, which otherwise would just lay arround as dust-catcher. And derivatives have no risk at all! They are a perfect instument to orchestrate our economy, just by itself and because no one is able to misuse them or to use them for lower purposes. Derivatives are one key to make all of our lifes more safe and easy and no one will be left behind, forever.

          So why are we people not getting it? Why don't we see that our tax money is helping our banks to overcome all the evil regulations they have been spellbound with by our evil governments?

          We are not bailing out banks, people, we are bailing out our very own and happy future!

          Open the market! Down with reguations! Down with governments!


          Delusion by repetition...
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        Nov 1 2012: well said.

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