Nationalizing banks won't do the economy much good, and the Obama administration should scrap their discussions of the idea, says Wilbur Ross, chairman and CEO of WL Ross & Co.
Ross told CNBC that some beneficial ownership of financial institutions is appropriate for governments but that being responsible for the management of banks is not.
The reason: America is becoming much too dependent on government-backed loans.
“Now if you also make the big commercial banks government-owned, it will be that the government is the only place where you can get a loan and if you nationalize a few government banks, why would a big depositor deposit his money anywhere but a government bank?" said Ross.
"Remember we have a limit on the FDIC insurance and it's not a huge limit.”
Ross said that if government had complete control over bank, business and politics have to be mixed, and this is definitely not a good idea.
Ross added that government control of the financial institution harms its business activity overseas too.
Citigroup is a significant international institution and there is a worry that business transactions outside of the United States will be influenced by geo-political interests.
“How does Citibank do a lot of business with foreign governments if it’s controlled by the U.S. government? And do it free of political interest? Does it really make any sense to potentially have the U.S. State Department running Citibank? I don't think that's the right thing to do from a public policy point of view," said Ross.
Other economic experts agree with this view.
"A temporary recession should not lead to a permanent expansion of the federal government,” writes economist Brian Riedel and colleagues at the The Heritage Foundation wrote in a briefing paper.
“Since federal spending totaled 20 percent of GDP before the recession, President Obama should aim to bring spending back to that level as soon as the economy recovers, likely within two years," Riedel wrote.
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