More Than One Way to Nationalize Preprivatize Bank
David Leonhardt has a good piece in this weekend’s upcoming Sunday Times Magazine on nationalization.Here’s a preview:
“Few words conjure the specter of radicalism quite so well as nationalization. Seizing control of large industries — nationalizing them — is often among the first acts of a leftist government. Lenin did it, and so did Hugo Chávez. Even the comparatively tame François Mitterrand made the nationalization of some banks and heavy industry the centerpiece of his agenda when he became France’s president in 1981. He held it out as the alternative to the laissez-faire ideology of Ronald Reagan and Margaret Thatcher.
So it is a bit odd to watch Barack Obama, who aspires to finally end the era of Reaganomics, spend his early weeks in the White House swatting away calls for nationalization from decidedly nonleftist quarters. Lindsey Graham, a Republican senator from South Carolina, recently said that, given the depth of the credit crisis, he wouldn’t rule out nationalizing banks. Alan Greenspan went further a few days later. “I understand that once in a hundred years this is what you do,” Greenspan, an Ayn Rand disciple before he was a central banker, told The Financial Times.
Graham and Greenspan were merely following the lead of various liberal and centrist economists who have been warning of the severity of the financial crisis over the past year. Only the government, their thinking goes, has the ability to remove the dead parts of the financial system so that the rest of it can start functioning again. But Obama and his Treasury secretary, Timothy Geithner, aren’t interested, at least not yet. They want to give the private sector another chance to clean up its own mess. And that has made some people wonder whether it is now the left — or at least Obama’s Democratic Party — that’s too afraid of a little nationalization.”
The rest can be found here . . .
Graphic via NYT
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Source:
More Than One Way to Take Over a Bank
DAVID LEONHARDT
NYT, February 25, 2009
http://www.nytimes.com/2009/03/01/magazine/01wwln-lede-t.html
February 27th, 2009 at 2:37 pm
So a question…….problems that have been germinating for what 10, 20, 30 years are expected to be resolved in 308 days? Talk about American exceptionalism.
February 27th, 2009 at 2:38 pm
Here’s why the banks are screwed and why the people who talk about going to “market to model” are wrong.
Gillian Tett’s article in the FT is superb. In a study by JPM from ‘05 to ‘07 450B in CDO ABS were written. 305B are in technical default, 105B have defaulted, with super seniors collecting 32% and mezz version 5%
http://www.ft.com/cms/s/0/2970532c-0421-11de-845b-000077b07658.html
The stuff is already at the 5% price the “market to model” touts say is preposterous.
February 27th, 2009 at 2:46 pm
Amusing outcome of Citi’s fall from grace today, at $8.5 billion, Citi’s market cap is now smaller than 5 of Canada’s top banks.
February 27th, 2009 at 2:49 pm
> Citi’s market cap is now smaller than 5 of Canada’s top banks.
What are you talking aboot, eh?
Had to get that out of my system =)
HCF
February 27th, 2009 at 3:02 pm
ER,,,,should have been 38 days……….
February 27th, 2009 at 3:16 pm
All these people clamoring for nationalization seem to be missing something we’ve already learned: when the government steps in and takes a credit-issuer under, it creates a condition of “default” per the definition in many default swap contracts.
So how much in CDS’ have been written on Citi? BAC?
February 27th, 2009 at 3:27 pm
The former head of structured products at UBS makes the case for bankruptcy rather than nationalization
http://www.realclearmarkets.com/articles/2009/02/go_with_bankruptcy_over_nation.html
February 27th, 2009 at 3:28 pm
ol’ gov,
when you’re on the wrong path, no amount of time will rectify the error of your orienteering lapse
February 27th, 2009 at 4:00 pm
I heard a woman say: mark to market is like going to bed with a porn star and mark to model is like going to bed with a banker…
February 27th, 2009 at 4:02 pm
I think I got it ass backwards…man, I got to leave that pinot alone!
February 27th, 2009 at 4:15 pm
http://despair.com/government.html
February 27th, 2009 at 5:05 pm
The only -ism the President believes in is Pragmatism. And that’s how it ought to be.
February 27th, 2009 at 6:11 pm
Perhaps they are trying to bye time so they can figure out what is in the banks and what is not there. I would hate to see government take over a bunch of additional obligations that they would not have to take if they instead used prepackaged bancrupcy. Also (as dsawy mentined) they have to figure out exactly what gets triggered in CDS if they nationalize – and what that will do to who. No matter what they do, they have to be sure to understand the full consequences, both in the short and long term. No more decisions based on ideological fiction.
February 27th, 2009 at 6:26 pm
I meant BUY time. Sorry a Freudean slip. Sitting there thinking about them buying time before these banks go bye-bye
February 27th, 2009 at 9:02 pm
As a non-American I am surprised and somewhat amused by the reaction to the word nationisation (We even spellit differently in Europe!) There seems to be something deep in the American psyche which gets triggered by the use of this word, even though in practise it has already been widely employed, in most cases with the support of the same folks who react so strongly against the use of the word. Is this some sort of vestige from the cold war or did Ronnie Reagan have a chip inserted in all GOP members?
Still, as they say, actions speak loude than words. Just like the Republican Governors taking a stand against the bailout by acceprting the money. Strange country sometimes.
February 27th, 2009 at 9:54 pm
VennData,
So these low valuations are like what the US guaranteed 1/2 trillion to CITI, BAC and AIG so far?
It’s hard to imagine how the values could be so low except that now that underwater homeowners in non-recourse states are throwing the keys and the banks are selling for 40% off, maybe it’s not too strange.
Also seeing banks taking big % off all cash sales on FL foreclosure sales. we’re heading back to a cash & carry economy!
February 27th, 2009 at 10:10 pm
This WSJ article describes a buyer who gets a 25% cash discount on a bank purchase, WOW! The article says financing is nearly impossible to get now even for valid buyers!
http://online.wsj.com/article/SB123552303469165085.html
March 1st, 2009 at 7:02 am
There is already a process in place for reorganizing failed banks (which is what we are talking about here) and getting the assets in the hands of people who can manage them. IIRC it is detailed in Section 8 of the FDIC Rules and Regs. Its time to get that done. Nationalization is an ugly term for that.
That being said, in the current climate I would not be surprised if reprivatization did not really happen and I share the angst over that prospect.