Thursday, September 18, 2008

Welcome to socialism!

Over the past week, the United States government has nationalized the two largest mortgage companies and the largest insurance company in the country. I'm sure if this happened in just about any other country we would be reading articles in The Economist tut-tutting our government for ignoring the glorious virtues of private enterprise. (Actually, I am interested in what the Economist will say when it arrives.) Dday on Hullaballoo expresses this sentiment nicely:
Yes, that's right, you've got a troubled insurance giant with billions of dollars tied up in worthless pieces of paper masquerading as securities. Yours for the low low price of $85 billion dollars!

You know, if this was Bolivia, the State Department would put out a strong statement declaiming the nationalization of industry and the stifling of private enterprise. But of course, in this case, industry made horrible decisions, so that justifies the Communism. It's unclear to me that it's even legal for the government to structure this absent legislation, but we're in a brave new world.
Anyway, now that the US government controls these entities, what should we do with them? Should we try to make them instruments of progressive policy? Should we get them back into the private sector as soon as possible? Should we dismantle them and sell them off piecemeal? It really is a challenge that I don't think too many people have spent too much time thinking about. At least I haven't. Yglesias has some interesting initial ideas:

Everyone in the policy community seems semi-paralyzed by the sheer scale of recent news and the volume of demands for basic explanations of what, exactly, is happening. But looking a bit past all that, isn’t there an enormous progressive opportunity here?

In November, there’s going to be an election. And in January, there’ll be a new President. And in the interim, progressive groups will probably come up with a lot of “ten ways to make everything awesome” proposals. And it’ll take 41 conservative senators to filibuster them all, and so they’ll all be filibustered. But if the government directly controls major financial institutions, that would give the new administration extraordinary leverage over the national economy. Suppose the new CEO of AIG decided he didn’t want to insure assets of companies whose executives make unseemly multiples of the national median income? There are all kinds of crazy things you could do. And of course not all of them woul dbe good ideas. But some of them would! And the smart folks on our side need to be figuring out which ones they are. It seems doubtful to me that a progressive administration would ever be able to get away with this much nationalizing of everything, but what’s done is done and I think it creates a real opportunity for “socially conscious insurance underwriting” or whatever you care to call it.

If the taxpayer is going to pay hundreds of billions of dollars, we should get something in return. Of course, I'm not sure I want to let the government use these entities as instruments of social policy, because the Republicans aren't going away and it is very likely that the power would be used for evil instead of good. So maybe we need to give our liberal statist dreams a dose of skepticism.

Still, we must deal constructively with the fact that Uncle Sam is currently the biggest mortgage backer and the biggest insurance company in the US right now.

In closing, dday makes an excellent point:
...this is an INSURANCE company who couldn't manage their own risk.

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