Nationalize Banks? Of Course!

Some prominent Democrats and Republicans in Congress along with some leading economists say it’s time to nationalize American banks. Some other leading Democrats and Republicans in Congress along with some prominent economists say no. But the argument here is silly.

Bank nationalization is already well underway. Twenty-five banks were taken over by the government last year and more than a dozen so far this year. Their deposits were guaranteed and remaining assets sold off by federal officials. They were, in other words, nationalized. Much of the hundreds of billions used to prop other other banks has been given in return for partial bank ownership by the government. These baks were, in other words, partially nationalized.

The present debate about nationalization really only revolves about two troubled institutions—Bank of America and Citigroup. And the great fear here when it comes to a full takeover is that it will rile the markets.

And yes, there will be a day or two of very steep stock market drops if a full nationalization takes place. But so what? Stockholders in these companies have already lost nearly nine-tenths of their equity through pure market machinations. Another final ten percent loss is nothing compared to this. Further, bondholders and depositors in these institutions will be much more secure with a government than a private bank owner.

Sometimes you just gotta let it go. You have to do in one fell swoop what’s happening with the death of a thousand cuts. Do what has to be done, what will eventually be done one way or another. Do it quick and move on. Do it slow and the pain will just go on and on and…

http://www.wallstreetpoet.com

         

2 Comments

  1. It's going to happen – 14 banks have been “nationalized” in the first 7 weeks of 09. The best thing to do is do it quickly, the big guys should not be excepted, and get it behind us so we can move on.

  2. I am fundamentally against nationalization of the banks (or any private enterprise)…. And I've commented on here several times on this. There are two primary reasons I'm against nationalization: let the markets, shareholders and customers weed the good from the bad- the very idea behind capitalism, and the second reason is more populist…. the number of shareholders and retired people who in these increasingly difficult times will lose everything they've ever invested in those institutions which are nationalized.

    But the last couple of days I'm having second thoughts… These are extraordinary times and quite frankly the chiefs at Citi, BofA and some other institutions wanted to earn money and were willing to get into risky investments, and investments that they had no business getting into and to the extent they did… certainly some exposure to these risky investments is to be expected, but not the huge exposure some institutions have. And these banks' risk models proved to be inadequate….

    So the bottom line is these institutions largely brought their current state upon themselves (though stock market panic might be playing a role, too as investors, not sure what to expect, flee these institutions, in turn causing more investors and these institutions' customers to flee).

    As far as shareholder value…. well that's mostly gone and the uncertainty is causing problems with healthier institutions.

    So I totally agree with what you said, “Sometimes you just gotta let it go.”

Submit a Comment