Schumer: Failed 'Zombie' Banks Should Be Nationalized

Original Link: www.huffingtonpost.com/2009/02/20/schumer-failed-zombie-ban_n_168625.html

By Ryan Grim

Sen. Charles Schumer (D-N.Y.) believes that failed "zombie" banks, no matter what their size, should be taken over by the government, which should then wipe out shareholders, fire management, clean up the banks and quickly resell them into the marketplace. Such a move, he cautioned, should come only if the "stress tests" being conducted by Treasury Secretary Timothy Geithner determine a bank to be insolvent.

In an interview with the Huffington Post, Schumer sought to clarify and elaborate on widely-reported comments he made last Sunday on ABC's "This Week."

During the show, Sen. Lindsey Graham, a Republican from South Carolina, turned a few heads by stating that nationalizing the banks should be a policy option on the table.

Responding a few moments later, Schumer said on ABC, "I would not be for nationalizing. I don't think government is good at making these decisions."

But on Friday, Schumer argued that there are good and bad ways to nationalize banks, and that the loaded nature of the term often leads to confusion. "'Nationalization' means many different things to many different people, and somebody needs to clear it up," said Schumer. "We have to distinguish. I like the good and don't like the bad."

Schumer also pressed that nationalization should be a last resort. "It should be the last arrow in the quiver. The danger here is when a government takes [a bank] over, it drives down shares of other banks that might not be in as bad shape," he said. "Let me be clear about this because I want to be very careful: I am not speaking of any specific institution, just a general comment about a general situation. And I don't have -- and please write this -- I don't have any specific institution in mind."

Schumer contrasted nationalizing and holding on to a bank with taking over a failed firm for a temporary period. "Bad nationalization is when the government takes over these institutions and runs them for a long period of time. I don't think this is a good idea. I know President Obama doesn't and I don't think most Americans do," he said.

"The government is not good at making these decisions and managing assets in general. It's a different way of thinking in government. The government bureaucrats make for bad bankers and you'd probably end up making it worse," he said.