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Experts weigh bank nationalization

A debate over nationalizing banks may remind history buffs of President Andrew Jackson's presidency, but the recent financial crisis has made the issue relevant to the public again.

The School of Law hosted a panel discussion in the Star Commons Wednesday to explore the issue of "Nationalizing our Banks." Despite the U.S. Treasury's recent efforts to inject billions of dollars into American financial institutions, the panel generally agreed that permanent nationalization of banks was not a solution to America's financial problems.

"The government is doing exactly what it does in a financial crisis, which is intervene.... Nationalization is part of that picture," said panel member Craig Burnside, a professor of economics. "Repeatedly people have avoided this dirty word called nationalization and insisted that's not what we're going to do with the banks."

Prominent economists such as Paul Krugman and Alan Greenspan have suggested the idea of nationalizing banks recently, Burnside noted. Krugman, a New York Times columnist and a professor at Princeton University, told Bloomberg News Tuesday that the U.S. government would eventually have to "seize" large banks as the economic crisis worsens.

Although some developing countries have had success with nationalized banks, Burnside said the model would not work well in the United States. He said economists like Krugman and Greenspan were referring to temporary nationalization in response to the financial crisis.

"We don't have any experience of having a state-owned banking system, and I don't think it's something that we really want to contemplate getting into," Burnside said. He added that many view the idea as "un-American" and most political analysts agree that permanent nationalization is politically unfeasible.

The other panelists rejected permanent nationalization as well, but even those with years of experience on Wall Street said the government should explore news ways of regulating financial institutions.

But simply calling for more regulation is an oversimplified demand, said Robert Steel, Trinity '73, the former president and chief executive officer of Wachovia Corp. who is now a member of the Wells Fargo Board of Directors. Steel, who is also chair of Duke's Board of Trustees and previously served as under secretary for domestic finance, said regulation needs to be carefully devised.

"Our regulatory system is outdated and it has been built over time, brick after brick, and it really needs to be rethought," he said.

Steel added that regulation should not be seen as a flawless solution.

"We have a great highway system, but we still have accidents," he said.

Time, confidence and capital are the three factors that observers should focus on to effectively monitor the development of the current recession, Steel said.

Congress, President Barack Obama's administration and Wall Street are the major players in the current economic crisis, said Edward Greene, a law partner at Cleary Gottlieb Steen & Hamilton in New York. Greene said the latter two have ruled out nationalization as an option.

"The institutions are so large that nothing of their size has ever been nationalized before," he said, adding that politicians should not allow their approach to the crisis to be dictated by public indignation. "My concern is that Congress, yielding to popular outrage, may interfere with what is essential."


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