Proposals By Administration and Federal Reserve Raise Questions of Nationalization of Banking Industry

Fed Weighs Options on Credit Markets Supports, Financial Times
Nationalization Gets a New, Serious Look, New York Times

Amid troubling economic announcements of thousands of job cuts and disappointing corporate earnings reports, the Obama economic team and the Federal Reserve continue to face difficult decisions of formulating a continuing strategy to fight the financial crisis.

The aggressive plans for financial industry bailout and financial stimulus of the Obama Administration--as detailed this weekend by Obama Advisor Lawrence Summers and Treasury Secretary designate Timothy Geithner--had already drawn criticism from conservative politicians and economists for being too expensive and so broad as too essentially represent the nationalization of the American banking industry.

Despite ardent rejection of any notion of nationalization by Administration officials and Democratic congressional leaders, questions and fears regarding nationalization will not likely be quelled by an anticipated series of proposals coming out of the Federal Reserve. It is expected that the Federal Reserve will announce increased commitment to relieving banks and institutions of toxic assets, as well as possible investments in the credit card, student loan, auto loan, and small business loan markets. Other policies believed to be under consideration by the Fed include bailout purchases of toxic assets from Fannie Mae and Freddie Mac and purchases of Treasury bonds.

Discussion questions:
1)Does the Obama Administration's proposed bailout/stimulus plan equal nationalization? Does it go far enough?
2) What degree of coordination should the Federal Reserve and the Administration have in addressing the current financial crisis?
3)Should the Federal Reserve pursue strategies of investing in Government Sponsored Enterprises and federal financial stability in general through the purchase of toxic assets and bonds?