Recycling: On Bank Nationalization

Half Sigma, advocating bank nationalization:

“Nationalized banks won’t efficiently allocate capital.” Is our current system of capital allocation efficient? Ha ha, very funny. First of all, bankers making bank loans don’t make allocation of capital decisions. They evaluate the creditworthiness of the borrower based on existing assets and income.

My response:

In principle, sure. But if the government controls the banks, there's going to be pressure from all sides to inject politics into this process. Democrats will want to skew the criteria to favor minorities and businesses that employ union labor. Republicans will want to skew the criteria to disfavor businesses that offend their religious sensibilities. And that's before we get to log-rolling and outright corruption.

It's easy for someone like you to sit down and come up with an intervention that improves on market outcomes. But these aren't the interventions that we'll actually get. The democratic legislative process is so profoundly dysfunctional that it's practically guaranteed to turn even the best abstract idea into a complete train wreck.

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Speaking of "Train Wrecks"

See Also, "Amtrak"

KipEsquire, A Stitch in Haste

Amtrak

Kip,

Would the President, the Vice President and the Speaker of the House all be allowed to ride on the same Amtrak train?

How much of a subsidy would they need to spell their name with a 'c'?

Regards, Don

I'm getting a very strong

I'm getting a very strong sense of deja vu. Is this a reference to an earlier thread?

Half Sigma

Not sure why you bother reading that blog. He's a half-sigma-wit.

Look of some of his ridiculous claims:

First of all, bankers making bank loans don’t make allocation of capital decisions. They evaluate the creditworthiness of the borrower based on existing assets and income. Thus bank lending reflects capital already allocated by other investors and by companies' operating success. A bank loan gives a company some extra leverage based on the capital it already has.

LOL! Like its all one big pool that any bank, any institution can dip into.

In traditional banking, the profit motive causes banks to make bad decisions. For example, when a banker sees that other banks are making big profits with no-money-down mortgages, it’s painful for a the banker to act conservatively and forgo those profits. The desire to make short-term numbers causes blindness to the long-term riskiness of loans.

ROTFLMAO. Really no-money-down is traditional, and is caused by the profit motive?

The guy doesn't understand that the short term thinking was all about "how fast can I produce loans to hand over to the Government Sponsored Entities, Fannie and Freddy". That is, it's not about traditional banking but CRA and GSE.

The rest of his post and the several other articles there are just as confused. He's a mental midget.

His blog is wonderful,

His blog is wonderful, though. There are few things so entertaining as a know-it-all who's actually a buffoon.

Good post.

It looks like nationalization is the latest trend for the hipster crowd. Pity.