Sen. Graham explains his view on nationalizing banks [Lindsey Graham]

Lindsey Graham, the Republican senator from South Carolina, has made himself a point-man in the rising nationalization debate.

Graham stepped out this week to advocate government takeovers of certain struggling banks, surprising some fellow Republicans and proving again that the banking crisis has turned many economic orthodoxies upside down. But Graham says he supports only a limited nationalization, and that he's doing so only because the government's current plan isn't yielding results.

“I want to bring closure to this, and I want a game plan,” Graham told the Observer on Thursday. “I'm not going to be the Herbert Hoover of 2009, saying, ‘Just let the free market work it out.'”

Graham said it's too early to tell which banks should be placed into government receivership, but Charlotte's Bank of America Corp. has been dogged by rumors that it could be nationalized. Its shares closed down 14 percent Thursday, to $3.93.

Thursday, bank spokesman Scott Silvestri emphasized the bank's financial strength, and said it plans to pay back the government's $45 billion investment as soon as possible. “We see no reason to nationalize a bank that is profitable, well capitalized and actively lending,” Silvestri said.

In the interview, Graham also said that if the government creates a bad bank to buy up toxic assets, he's working on getting at least some of its operations based in Charlotte. Questions and answers were edited for clarity and length.

Legal Plunder Has Many Names

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, FREE CREDIT, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

How to Identify Legal Plunder

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Then abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. If such a law — which may be an isolated case — is not abolished immediately, it will spread, multiply, and develop into a system.

Frédéric Bastiat

Warnings from a great economist from a long time ago.

BOLDCAPS mine

Or, if you prefer, something more recent...articulated in DISSENTING VIEWS...pertinent to one of the root causes of our current situation...here...

PURPOSE AND SUMMARY (p.3)
H.R. 1276, the American Dream Downpayment Act, amends the
Cranston-Gonzalez National Affordable Housing Act to authorize
the Secretary of HUD to make grants to participating jurisdictions
for downpayment assistance to low-income, first-time home buyers
using the HOME program as a distribution mechanism.

DISSENTING VIEWS (p.16-17)
The American dream, as conceived by the Nation’s founders, has
little in common with H.R. 1276, the so-called American Dream
Downpayment Act. In the original version of the American dream,
individuals earned the money to purchase a house through their
own efforts, oftentimes sacrificing other goods to save for their first
downpayment. According to the sponsors of H.R. 1276, that old
American dream has been replaced by a new dream of having the
federal government force your fellow citizens to hand you the
money for a downpayment.
H.R. 1276 not only warps the true meaning of the American
dream, but also exceeds Congress’ constitutional boundaries and
interferes with and distorts the operation of the free market. Instead
of expanding unconstitutional federal power, Congress should
focus its energies on dismantling the federal housing bureaucracy
so the America people can control housing resources and use the
free market to meet their demands for affordable housing.
As the great economist Ludwig Von Mises pointed out, questions
of the proper allocation of resources for housing and other goods
should be determined by consumer preference in the free market.
Resources removed from the market and distributed according to
the preferences of government politicians and bureaucrats are not
devoted to their highest-valued use. Thus, government interference
in the economy results in a loss of economic efficiency and, more
importantly, a lower standard of living for all citizens.
H.R. 1276 takes resources away from private citizens, through
confiscatory taxation, and uses them for the politically favored
cause of expanding home ownership. Government subsidization of
housing leads to an excessive allocation of resources to the housing
market. Thus, thanks to government policy, resources that would
have been devoted to education, transportation, or some other good
desired by consumers, will instead be devoted to housing. Proponents
of this bill ignore the socially beneficial uses the monies
devoted to housing might have been put to had those resources
been left in the hands of private citizens.
Finally, while I know this argument is unlikely to have much effect
on my colleagues, I must point out that Congress has no constitutional
authority to take money from one American and redistribute
it to another. Legislation such as H.R. 1276, which takes
tax money from some Americans to give to others whom Congress
has determined are worthy, is thus blatantly unconstitutional.
I hope no one confuses my opposition to this bill as opposition to
any congressional actions to ensure more Americans have access to
affordable housing. After all, one reason many Americans lack affordable
housing is because taxes and regulations have made it impossible
for builders to provide housing at a price that could be afforded
by many lower-income Americans. Therefore, Congress
should cut taxes and regulations. A good start would be generous
housing tax credits. Congress should also consider tax credits and
regulatory relief for developers who provide housing for those with
low incomes. For example, I am cosponsoring H.R. 839, the Renewing
the Dream Tax Credit Act, which provides a tax credit to developers
who construct or rehabilitate low-income housing.
H.R. 1276 distorts the economy and violates constitutional prohibitions
on income redistribution. A better way of guaranteeing an
efficient housing market where everyone could meet their own
needs for housing would be for Congress to repeal taxes and programs
that burden the housing industry and allow housing needs
to be met by the free market. Therefore, I urge my colleagues to
reject this bill and instead develop housing policies consistent with
constitutional principles, the laws of economics, and respect for individual
rights.
RON PAUL.

Full report...here...

http://financialservices.house.gov/media/pdf/hr108164.pdf

Thanks to FReeper Dixiekraut for getting my attention in his post yesterday.

No, I don’t think it would work.

The idea of the system is to prevent any loss on the part of the banks. The system shifts the ultimate burden to the taxpayer through the hidden tax called inflation.

In your scenario, to prevent too many banks failing, the Fed Reserve would print enough new money to bail out the failed banks. The influx of newly printed money would drive up prices (inflation) and devalue whatever money people had.

This, in turn, would increase the percentage of the GDP our national debt represents, which further harms our economy as it makes the US look like a bad investment from internal and external investors.

The best way to solve this situation is for the gov to get out of the way and let the markets work. That means letting businesses and banks fail. It would be a shot on the chin for a lot of people, but when we regroup, we would be much better off for it. As it is, we may never be able to regroup because the free market and the risk of bad decisions is constantly removed by the government bailing out failures.

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