American banks are again teetering on the edge. Downgrades by ratings agencies and stock analysts on two of Georgia's largest banks, Suntrust and Synovus (which owns Bank of North Georgia), have been reported. Both banks reported massive losses in the final quarter of '08. Bank of America also had to ask for additional funding from the federal government to stay afloat.
And after the $350 billion given to "recapitalize" the nation's banking system, one has to ask why we are back at this point. The answer lies in the fact that our government has neither conceived nor put in place a clear strategy to deal with the current crisis. Our savings will have little security until such steps are taken.
In light of the Synovus loss, the Atlanta newspapers reported "the company's performance did not meet analysts' expectations." It seems the soothsayers had predicted a loss of 49 cents per share, only one fourth the real accounting. The "analysts" in question are usually economists, or other theorists, who seek to predict the future based on statistical models that feed on information about the past.
Italian historian Guicciardini wrote in 1529, "How happy are the astrologers, who are believed if they tell one truth to a hundred lies, while other people lose all credit if they tell one lie to a hundred truths." Renaissance Italy had its astrologers, we have our economists.
What is more troubling is that the authorities' failure to articulate a clear course of action on the crisis at hand has left others to fill the void. Conspiracy theories are being heard more and more by the bugs lurking in the dark anonymity of talk radio and the Internet. The fact is that events taking place are probably too complex for us to ever gain their full comprehension and understanding.
Yet in our worldly arrogance we believe that all must be explained. I do not advocate fatalism, but only that we should not give credence to cranks and lunatics who fantasize over conspiracies to satisfy the public's conceit.
What must be done is clear to most observers, yet they are loath to say it: We must nationalize failing banks. It is not ideological ploy, but simply the penalty for banks which have operated recklessly. Cries of socialism will surely meet the idea, but labels should not deter us, for there is no acceptable alternative.
Those who are ideological purists in favor of a totally free-market should take note of the dangerous and turbulent waters into which deregulation has landed us. What is sometimes forgotten by the zealous political believer is that ideologies are only useful as a framework from which to judge the countless schemes of mankind; if they are taken to an uncompromising conclusion they are capable of producing the most grotesque results (such as fascism in Nazi Germany).
Most of us desire as free a marketplace as possible, but an industrial economy without regulation has the well-known consequences of extreme poverty and a drastic boom-and-bust cycle, which our society has found intolerable in the past.
The state, through the FDIC, has underwritten the nation's banks since 1933. Their very existence depends on the assurance of the U.S. Treasury. That the banks have been managed disastrously cannot be questioned.
I mention the recent case of John Thain who spent $1.7 million redecorating his office while the company in his charge was losing billions and firing employees. Later, in an act of unabashed cronyism, Thain paid out $4 billion in bonuses just before the company was forced to sell out.
If you want a closer look at the social reality of Wall Street, Michael Lewis's "Liars Poker" is a magnificent exposé on the brigandry and vanity rampant in the band of pirates running Saloman Brothers in the 1980s.
With this level of incompetence and outright criminal license exhibited by the managers of companies which the state guarantees, the government has no choice but to seize the assets of banks when they fail. The shareholders and managers may get a pat on the back and a "thanks for coming out," but not more. The deposits will thus be safe while the bank is fixed up and resold to new investors or to a company better able to manage its responsibilities.
From politicians we have heard enough of vision and change during the recent campaigns. What is now required is a clear strategy for action followed quickly by its efficient execution.
Jesse Corn is a Gainesville native and North Georgia resident.