Do not rely on bankers

Esther Duflo Esther Duflo in Vox:

This column warns against bank nationalisation without state control. Bankers will not hesitate to enrich themselves at the expense of the public good if they have the opportunity.

The Obama administration is reluctant to nationalise banks (or at least some of them). The word nationalisation, until recently almost vulgar in the American vocabulary, has made its debut on television and in newspapers. The first on the list are the two biggest banks, Citibank and Bank of America, whose stock price has collapsed due to rumours that the government may soon take control. Republicans stifle it. For them, the relaunch plan is too European (the new Communism!). But economists who call for nationalisation are increasingly numerous.

The argument heard most in favour of nationalisation of banks is financial. Their losses were so important (the time of billions is over, we are now in trillions!) that only the government is in a position to save the financial system by investing heavily in ailing banks. At the end of the Bush administration, the Paulson plan included taking stakes in state banks without voting rights. But the rights of the taxpayers must be protected; the state can not become the main shareholder of banks without taking their control.

There is another argument, implicit or explicit, for the nationalisation of banks; we can not trust bankers not to leave with the cash, let alone spend any of the assistance provided by the government in the public interest. Two recent studies that analyse the experience of recent years show that bankers will not hesitate to enrich themselves at the expense of the public if they have the opportunity.