Call me Inga:

When I was in college, I worked at a local electronics store. Through a chain of corporate takeovers, they eventually wound up in the hands of the now defunct Circuit City. Sent to the company HQ in Richmond, Virginia for advanced training, I went out to dinner with a group of locals. When one of the white dudes at the table casually used what we used to call “the N word,” I — quite literally — ducked under the table.

Instead of gunshots, there were peals of laughter. The black guys thought it even more amusing than the white guys. Ain’t it funny, the NY Jew was stunned at the use of that word. I said something to the effect of “Where I come from, dems fightin words.”

No matter. We now have a new N word today, and its Nationalization.  Why the word is so fearful and loaded is beyond my comprehension. As Bloomberg’s David Reilly writes, “The nationalization debate is a smoke screen. We’ve already nationalized the big banks. Let’s just accept it and move on” — and I could not agree more.

OK, so how do we move beyond the N word?

Instead, why don’t we call it by a more accurate, precise, and less scary name: FDIC mandated, pre-packaged Chapter 11, government funded reorganization.

That is an accurate description of what occurred with Washington Mutual (WAMU) now part of JPM Chase, and Wachovia, now part of Wells Fargo. The Feds step in, seamlessly transfer control of the assets to a new owner, while simultaneously wiping out the debt, the shareholders, and giving a huge haircut to the bondholders.

Let’s look at each of these in turn:

FDIC mandated: What does that mean? Well, by law, the FDIC is required to handle the liquidation or reorgs of insolvent banking institutions. We have prevented that normal process thru the application of trillions of dollars in bailout monies;

pre-packaged The entire process is mapped out in advance so as to make it fast and seamless. WAMU depositors did not notice a single change over the weekend their FDIC mandated, pre-packaged Chapter 11 workout, government funded reorganizatio occured. The only observable difference was that WAMU customers were no longer charged an ATM fee when they went to Chase ATMs, as it was now the same company;

Chapter 11 The full bankruptcy protection applies — meaning employees still get paid, secured creditors do not suffer, and debtor in possession financing (DiP) is available to the bank;

government funded The source of the DiP funding;

reorganization Just what it sounds like — new board of directors, management transitions out to a new team, recaptalized, bad debt taken off of the books, toxic assets spun out.

What emerges is a clean bank, no debt, well capitalized, and free of deadly toxic assets. You can see why so many people would find this state of affairs utterly objectionable.

In all seriousness, I understand the objection by shareholders — already down 90% — who would be wiped out by this. I fail to see the merit in the save-the-banks-at-any-cost arguments so many are proferring and preferring.

If the choice is between going Swedish or turning Japanese, you can call me Inga . . .

>

Previously:
Why Are Banks So Different From Autos? (December 9th, 2008)

http://www.ritholtz.com/blog/2008/12/why-are-banks-so-different-from-autos/

Time to Get Swedish (January 23rd, 2009)

http://www.ritholtz.com/blog/2009/01/time-to-get-swedish/

Favoring Nationalization Are . . . (February 20th, 2009)

http://www.ritholtz.com/blog/2009/02/favoring-nationalization-are/

See also:
Bank Investors Left to Read Entrails for Guidance
David Reilly
Bloomberg, Feb. 25 2009

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_reilly&sid=axsmjkDYWDsg

Category: Bailouts, Credit, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

63 Responses to “The New N Word: Nationalization”

  1. Mike in Nola says:

    When in New Orleans, it was sometimes awkward to be with a group of black clients, have one of them forget I was white, and call one of the others the N word. When he realized what he had said, there would be a short, embarrassed pause.

  2. grumpyoldvet says:

    Reminds of my first box of Crayola Crayons. Had the 3 primary colors plus back and white. Then in second grade got the 16 box version and on and on. Many different shades and hues but all were variations and combinations of the primary colors plus the 2 non-colors. So call it whatever you want it is what it is.

  3. grumpyoldvet says:

    Er should have added….JUST DO IT ALREADY.

  4. Mike in Nola says:

    Got sidetracked on the N word. What I had started to say was that this use of the term Nationalization is just another example of controlling the debate by controlling the vocabulary. Americans and the MSM seem to accept this blindly. Another example of intellectual laziness that pervades our culture. This is just like “Iraqi Freedom” instead of “Lets invade Iraq, control their oil and build bases there so we can control the Middle East.” Or, “terrorist surveillance” instead of domestic eavesdropping. Or, the various euphemisms for torture and torture chambers used by the Bush Administration.

    The slogan should be “Let the FDIC do its job and liquidate the big insolvent banks like it does the small banks.”

    BTW, I don’t personally know anyone in favor of giving the big banks any money. Obama could raise his ratings a great deal if he just got it over with.

  5. JohnDoe says:

    Is this really plausible in practice? How much money would the FDIC lose between Citi and B of A? And would anyone really want to buy those assets from them?

  6. VennData says:

    Creeping nationalization is something Obama does. Bold action to rescue AIG, IndyMac, TSA, Fannie, Freddie etc… is Bush.

  7. Benber, yesterday, was saying the ‘Nationalization’ was a bad idea due to the negative effects on ‘Franchise value’.

    Being able to say that with a straight face is Talent. He should be running a Ponzi Scheme O Wait…

  8. V says:

    What I can’t understand is that it’s not like they need to nationalize all of the banks all at once, why not start with one and see how it goes?

  9. km4 says:

    Barry your post triggered my remembrance of this clip

    Blazing Saddles – The Sheriff Is A…(DONG)
    http://www.youtube.com/watch?v=W2fRSQ4L-SI

    “Hey Gabby, can you see him yet”?
    “Sheriff’s comin’ “!
    “Ring up that church bell, strike up that band”.
    “Hey, the president is a ni*BONG*”!
    “He said the president is NEAR”.
    ” No gol blame it dang varmits! I SAID that the sheriff..is a ni*BONG*”!

  10. Ventura2012 says:

    Doesnt it all come down to the govt is afraid of the credit default swaps on the bank debt? Can someone please tell me how you can give $45 billion dollars to a company with a market cap of $14 billion dollars and only get a 40% stake…this makes absolutely no sense.

  11. rktbrkr says:

    Most of the big banks are already insolvent and nationalized. We have the structures in place to deal with these banks but instead Paulson started his Deal of the Week (maybe Weak) Club and postponed the inevitable.

    We can either bite the bullet now or continue pouring unimaginable amounst of cash into a black hole, debase our currency and leave the nation in hock for eternity.

    we can’t let the empty vessels on CNBC and the haters on talk radio dictate folly to the nation by pressing the N word button. The actions/inactions of the prior admin brought us to this point, no good options are available.

  12. JustinTheSkeptic says:

    N, is for novel. Very nice intro BR. I use to here the N-this and N-that, all the time being the only white boy on my high school basketball team…and yes if you get to know them you can even use it too!

    The inability of MSM, the government not to use the N-word, is just another canard they have going. Red Herrings abound in todays world. Truth is no where to be found, and I fear the masses will catch on soon!

  13. paulbenny says:

    Could someone explain why WFC is not a buy if the Wachovia situation is under what Barry calls nationalization. In line with that, Chris Whalen the bank risk analyst who seems quite on the mark ranked them third or fourth on nationalization potential based upon his definition after BAC and C.

    Thanks.

  14. dead hobo says:

    Inga? You don’t look like no Inga. How about a Myrtle or an Inez? You don’t have the legs for a Betty.

  15. DC says:

    Conservatives broke the code years ago when they figured out that many Americans are just too damn lazy to think for themselves. Limbaugh and his spawn are jillionaires as a result, and the Republicans will continue to capitalize politically until the trade no longer works.

    Moments ago on CNBC Rep. Spencer Bachus of Alabama gave a near-perfect rehash of today’s talking points. He focused on Santelli’s angry mob and nitpicked about nationalization. He made almost no sense if you actually think about the big picture and what’s at stake, but he did repeat the Wall Street mantra that the “lack of detail” is what’s holding the stock market from returning to 14,000.

    That’s complete claptrap. It’s today’s excuse for the traders. Once they get their “clarity” there may be a pop, then reality will again overtake them and they’ll gin up some new excuse. Neither the Republican Party nor the CNBC Trader Team is able to stomach the reality of the horrid situation we are now in — and for which they collectively bear a great deal of responsibility.

    Most of all, they can’t seem to get over their obsession with an instant fix. It ain’t coming.

  16. mhm says:

    Mike in Nola said: “Nationalization is just another example of controlling the debate by controlling the vocabulary.”

    Not only that but Nationalization as opposed to what, Internationalization?

    “Statization” would be the proper word if it were a word in English… maybe it is time it got an entry in the dictionary.

  17. davossherman@gmail.com says:

    If they take the derivatives $175,841,765,000,000.00 and mark it down and sell it privately and offer to backstop losses what will that do the the CDS market?

    Citi alone has $35,645,429,000,000.00.

    What will happen to the size of the financial institution if that crud left their books?

    On paper the N-plan makes sense. I just wonder how the Derivative domino’s will fall and on what.

  18. MAL says:

    1. FDIC mandated forced bankruptcy of insolvent banks that can not obtain capital in the capital markets and require government assistance where all owners, both debt and equity, are wiped out

    2. Senior management and board of directors are replaced with both management from outside and inside the bank and with independent/knowledgeable board of directors outside and inside the industry

    3. Then the government immediately IPOs each bank separately where the new bank is essentially the same but with out its debt, senior management, and board of directors

    4. All funds generated from the IPO minus any transaction costs go to the previous owners starting with the most senior in the capital structure all the way down the line if funds are available

    I understand that in this environment an IPO of a bank would not result in the “most” value, but the alternatives are essentially a disorderly bankruptcy or our government’s current band-aid approach.

    This could all happen virtually overnight.

  19. Neal says:

    From an investor’s perspective, this entire “N” discussion (pumped by the Administration) creates even greater uncertainty. We don’t know what it means, who it will impact and/or when.

    Uncertainty…..just what the market needed.

  20. franklin411 says:

    What’s so all-fired wrong with actually doing some recon before we send the 82nd Airborne in?

    Bush/Paulson did exactly what the banks said they needed to do to fix the problem without actually doing their own investigation, and look where we are.

    Obama/Geithner seem to want to look before they leap, hence the stress test. What’s wrong with that?

  21. MAL says:

    @ franklin411

    The comments about doing stress tests is public relations b*ll sh*t.

    Trust me: bank regulators (not the PhD academics) at the Board of Governors along with all the other regulatory bodies already do stress tests. In fact, I use to contribute to the analysis. My section identified serious problems (the very ones we have today) in 2004/2005, but no one cared because we did not have PhDs in economics.

    Bush was an idiot, but for the love of humanity, will every stop falling over Obama and review what he is suggesting with a critical eye! By the way, Geithner is merely an extension of Paulson since he was intimately involved all previous incompetent actions during the Bush administration.

  22. Banks, particularly commercial banks dependent on their funding for deposits, which are, in turn, insured by the FDIC, have always been more or less “nationalized”. The get their raw material, i.e., money, from a monopolist supplier (the federal government) that sets its price. Lax oversight of what they did with their raw material, and mismanagement of its supply and price, and the moral hazard inherent in insured deposits, is a big reason for the banking mess we are in.

    Some banks are bad ideas that never had a good reason for existing. Citi comes to mind. Why it shouldn’t go into FDIC receivership, or nationalization, or whatever you want to call it, is beyond me.

    Yet, w/ Citi, BofA, and even GM and Chrysler, we seem to think that what has gone before must continue. But Citi and BofA didn’t even exist in their pre-crisis configurations a decade ago. GM just barely made it to a hundred years as a viable company.

    The Dow, itself only a bit over a hundred years old, has very few (perhaps none–I’m going on memory here as they don’t allow the information for free on their website any longer) of its original components.

    The point, however, is that we must get past the past and stop thinking of anything as a sacred cow. Companies come and go. The economy can only thrive when its natural processes are allowed, like a wildfire in an old-growth forest, to clear away the dead and dying, such that new growth can obtain.

  23. Jdamon33 says:

    Paulbenny,

    WFC is a buy at these levels, however I’ve gone to that well twice and got burned twice, so I’m a little reluctant to dip my toes in a third time.

    One thing Barry doesn’t discuss in his Nationalization pleas are the fact the bondholders would be essentially wiped out, which in turn creates counterparty risk that is really hard to get ones arms around. Also, they are deathly scared of media coverage of panicky depositors lining up around the street corners trying to pull their money out (i.e. run on the bank). No one talks about all the people with larger deposits than the FDIC insurance limits which would come into play if the bank goes under.

  24. Transor Z says:

    @ franklin411:

    Because the stress tests are too much like due diligence and, hence, Rule of Law.

    Problem is, Americans’ appetite for news NOW through the MSM is a beast that has to be fed in daily news cycles. The “leaked” Citi proposal to give the U.S. 25% – 40% was preemptive. The stress tests will provide the procedural hook to permit the executive to express “shock and dismay” that the situation was even worse than reported or expected. And dramatically announce temporary emergency measures.

    Watch for a special prime time presidential address to the nation within a month.

  25. Correction: Some of the Dow Average information is free, particularly its history, and can be found here:

    http://www.djaverages.com/

    GE is the only one of the original twelve companies still in the average, and even it was dropped for a while in the early 20th century.

    Now that we know it was a hedge fund masquarading as an industrial conglomerate, perhaps it will be dropped again.

  26. franklin411 says:

    Mal,
    Maybe you’re right WRT preexisting Fed stress tests, but I’m still skeptical of anything that happened as far as regulation during 2001-2009. Isn’t it true that industry basically wrote their own rules under the Bush admin? I realize that the Fed is public and private, so it’s not fully a Federal agency, but they both operated under the mindset that business prospered when allowed to do whatever it wanted. So wouldn’t stress tests done during the Bush years be suspect, if only because standards were lower then?

    BTW, what happened to all the CNBC hemming and hawing about how we had to get rid of Sarbox and transparency or the entire civilized world would do business in London instead of NY? ;-)

  27. grumpyoldvet says:

    The boys and girls in the trading pits demand “transparency” or they will tank the market. This from a group that brought you securitized thingies, swaps, CDSs. CLOs and other thingies no one can put their arms around. I’m a long time investor but frankly I am tired of all their self serving bullshit.

  28. Pete Thorn says:

    Barry,
    How does the international divisions of Citi play in nationalization? Would there be cross-country
    cordination for taking over those international divisions or would it be all the U.S.? Nationalization
    sounds right by me, just wondering if the international divisions issues are giving the U.S. government
    pause to go ahead and do it?

  29. thehman says:

    Anyone want to think about the consequences of just walking away from all the hundreds of billions of debt at the large banks. It is easy to say that the recapitalized bank is clean coming out of the process but very little thought is given to the impact of all that debt magically disappearing. Guess who owns all that debt – other banks, pension funds, insurance companies, private investors, mutual funds, etc. Given the size of the “too big too fail” banks – a “cleansing of debt” cascades and takes scores of others with it which repeats this process over and over. Not even touching the credit derivatives issue which then likely triggers bank collapses globally with more debt going unpaid. This is the guagmire and the government does not really have the option of letting some of these banks being thrown to the dustbin because of the follow-on debacle.

  30. Outlier says:

    “OK, so how do we move beyond the N word?

    Instead, why don’t we call it by a more accurate, precise, and less scary name: FDIC mandated, pre-packaged Chapter 11, government funded reorganization.”

    Come on now Barry, how in the world are the anchors and reporters going to remember all those words. Yeah the branding game needs to be played but, you need to do it right. One nice clear easy to grasp word that sums it up without saying anything…

    My suggestion would be CLARIFY, as in the banks need to be clarified. By the government obviously, but no need to tell the news anchors that detail…

  31. ottovbvs says:

    BR: Puuuhleeze…… it’s got bugger all to do with the word…….dah….dah…dah…DAH… nationalization……..and it’s not got a lot to do with protecting the stockholders except in the generic sense that in order to get this show back on the road they are probably going to have ask the same people for a load more tin…..there are a mass of psychological and technical reasons they don’t want to do this.

  32. ottovbvs says:

    “No one talks about all the people with larger deposits than the FDIC insurance limits which would come into play if the bank goes under.”

    …..If anyone personally has more than 100k of cash exposure in any bank he deserves to lose it…….I don’t think “bank runs” have anything to do with this

  33. “…..If anyone personally has more than 100k of cash exposure in any bank he deserves to lose it…….I don’t think “bank runs” have anything to do with this”

    Agreed, but the limit is now $250K. The only entities likely to be affected would be small to medium-sized businesses, and they, too, should know how to manage their exposures.

  34. Call it what it is. Bankruptcy. THE BANKS ARE BANKRUPT. They need to go through bankruptcy proceedings! Doesn’t matter what you call it, Nationalization, Hot Monkey Sex, Splunge, the end result needs to be the same.

    The losers need to lose, and the prudent need to win.

  35. 10 cc says:

    Who exactly is it that’s so horrified of nationalization anyway (besides those who might lose their license to steal of course)? I don’t think Average Joe give’s a rat’s ass if banks are temporarily nationalized; as long as the ATM still spits out the twenties.

    But in case I’m wrong, here’s an idea: instead of this generic and scary-sounding “nationalization”, lets call it … Americanization.

    Yeah, let’s Americanize the dead banks. Can’t nobody be against that.

  36. constantnormal says:

    @ JohnDoe — 8:33am

    “And would anyone really want to buy those assets from them?”

    Apparently the taxpayers. Isn’t that what’s happening every time we pour another barrel of taxpayer debt onto the banks?

    Uncle Stoopid gets more worthless bank stock (when he even gets that), and the taxpayers continue to fund the continued existence of the toxic assets. Oh, and the clowns that killed off the banks continue to sit in their nice offices, and collect their nice half-million-dollar salaries instead of being unemployed like the taxpayers.

  37. Bruce N Tennessee says:

    http://www.marketwatch.com/news/story/Fed-knows-its-doing-bank/story.aspx?guid=%7BE1CE645E%2D4A35%2D426C%2D93DB%2D10DBD4887DB2%7D&dist=hplatest

    Bernanke tells Congress Fed knows what it is doing

    “We’re not making it up,” Bernanke told the House Financial Services panel.
    “We’re working along a program that has been applied in various contexts,” he said. “We’re not completely in the dark.”

    Depends on what your definition of dark is, I suppose…Mr. “Sub-prime mortgages will not be a problem” Fed chairman….

  38. Bruce N Tennessee says:

    “If anyone personally has more than 100k of cash exposure in any bank he deserves to lose it…….I don’t think “bank runs” have anything to do with this”….

    What if you are a small business with 20 employees? or 50?

    And why should we want anyone doing business with a bank to lose their money? The bank leaders made the mistake, not the depositors…

    You don’t care that the people who earn the money lose it, but you want to bail out people who went to Vegas on easy money and the housing bubble with higher taxes?

    …nope.

  39. Andy Tabbo says:

    I know that some form of Nationalization seems like “right” idea being promoted on many blogs like this one, naked capitalism, clusterstock, as well as many well known economists.

    I guess it depends on “how” it’s done. If the banks good assets are sold off quickly to “winners,” then it’s a very good idea. However, if the idea is to do an equity wipe, turn bondholders into equity holders, and then the “new” banks remain stand alone businesses, then I think it’s a BAD idea.

    There’s a history of this occurring in the airline industry. What happens is the “new banks” that emerge from this process are MUCH stronger than the banks that don’t need to be “nationalized.” How does JPMorgan, Morgan Stanley, GS compete against a few new banks that are suddenly extremely healthy? How do the really strong regional banks compete against the new banks. It potentially puts the banks that did a good job navigating this crap at a distinct disadvantage in the future.

    So, while “nationalizion,” or pre-packaged bankruptcy seems like a great idea, I think it’s important to project out a few years and think about the unintended consequences down the road…

  40. d4winds says:

    Everything you say makes far too much sense.

  41. njtking says:

    Barry-

    We need to also address CDS as I believe that CDS creates the largest hurdle.

    The federal government should make all CDS contracts worthless on any corporation they nationalize or the cascading problems will make things much worse.

    How do you think CDS should be handled?

    Best,
    jt

  42. DL says:

    “Chapter 11: The full bankruptcy protection applies — meaning employees still get paid, secured creditors …”

    Well, maybe not. I think that overall employment in the banking sector is going to have to decline somewhat.

  43. DL says:

    The biggest question for me is, how much is it going to cost…?

  44. call me ahab says:

    @Jdamon33

    There won’t be any lines with bank runs- that’s so 1930′s. People quietly withdraw/transfer their funds electronically- that is what happened to Indymac. Also- I get so tired when you hear folks say (including Geithner) that the problem with nationaization is that government has no experience running banks. Who says the government will be running the bank???? It is not like they are going to send in the civil service to start running the place. They will be managed by bankers- hopefully capable and prudent ones. Also- it is TEMPORARY nationalization. The USG will be more than happy to pass it off once the crisis is resolved.

  45. Bruce N Tennessee says:

    http://www.cnbc.com/id/29372982

    Why More US Banks Aren’t Being Allowed to Fail

  46. The federal government should make all CDS contracts worthless on any corporation they nationalize or the cascading problems will make things much worse.

    THIS is why I’ve been avoiding SKF lately.. Uncle Sucker has been changing the rules of the game (or promising to, or threatening to), and WTF knows what anything is going to be worth? IIRC SKF and its ilk (double or more shorts) use mostly CDOs and/or other ‘bucket shop’ instruments for their leverage, so if the FedGov outlaws 3rd party exercising..

    Not that I think X-party CDOs (or probably _any_ CDOs) should be allowed to exist, or that I think the taxpayer should spend future generations’ money in paying them off, but to make rational investment decisions when the rules are in such flux… Requires bigger, brasser balls than I have :p

  47. bdg123 says:

    Frankly, I believe nationalization is constructive and has the potential to blossom even further. While I have no grand desire to bankrupt the country, savers and retirees even more, the only question I have is who maintains the debt obligations. This is a process rather than an event so that will likely morph over time.

    In the end, we might see necessity force a change in our banking structure. A permanent one. How bad could that be? We need to move to a distributed point-of-use banking structure instead of this monopoly system that benefits New York and a handful of cronies. I’d say the odds are reasonably high that will happen. Not because the status quo wants it. But, because it will be a matter of survival.

  48. Transor Z says:

    If BoA and Citi get [INSERT TERM HERE]-ized, then that means the TARP equity gets wiped out also, correct?

    So it becomes official that TARP I = taxpayer sodomy?

  49. (err, make that CDS, not CDO… need more coffee :p)

  50. call me ahab says:

    @ noisewater

    True- also the 2x and 3x are settled daily- can only be used for short term trades. SEF is a 1x inverse that you can hold for long periods.

  51. Den som viskar han ljuger !!!

    (He who whispers is lying) — Swedish.

  52. Tom K says:

    “and free of deadly toxic assets”

    Two questions that seem to get brushed aside as minor details:
    1. How exactly will these toxic assets be de-toxified? And isn’t this really just a shell game?
    2. What is the scale of these “deadly toxic assets”. It seems a bit odd to me to recommend a plan that consists of buying what’s behind door #3, especially if you know for sure it’s “deadly”.

  53. Greg0658 says:

    Pete Thorn Says: February 25th, 2009 at 10:15 am
    good point Pete .. Americans carry the MIC and BIC .. WE CAN do it

    Dr. Kenneth Noisewater Says: February 25th, 2009 at 11:18 am
    ya but .. some countrys dont honor bankruptcy

    Bruce N Tennessee Says: February 25th, 2009 at 11:58 am
    I thought FDIC went to $250K or was that offer temporary / squashed / or ad campaign only?

  54. Gabriel says:

    Speaking of Gov and Finance, today’s Dilbert is a keeper! ;-)
    Dilbert 2009-02-25

  55. ottovbvs says:

    The Curmudgeon Says:

    February 25th, 2009 at 11:11 am
    Agreed, but the limit is now $250K. The only entities likely to be affected would be small to medium-sized businesses, and they, too, should know how to manage their exposures

    ……..You’re right, I’d forgotten they’d raised to $250k recently

    Bruce N Tennessee Says:

    February 25th, 2009 at 11:58 am
    “What if you are a small business with 20 employees? or 50?
    And why should we want anyone doing business with a bank to lose their money? The bank leaders made the mistake, not the depositors…
    You don’t care that the people who earn the money lose it, but you want to bail out people who went to Vegas on easy money and the housing bubble with higher taxes?”

    ……Non sequiturs must be a house speciality in TN……..I don’t want anyone to lose their money, but that doesn’t mean a small business owner doesn’t have to act prudently……And in any case I don’t see many businesses with 20 employees having 250k sloshing around in one account….most businesses maintain several different accounts……

  56. Andy Tabbo says:

    Very interesting developments today….

    Gold bugs….”tis but a scratch…”

    The action down from the highs now looks like a very ominous five wave type structure on my intraday charts. We may get a bounce now as we’re on a trendline from the 1/15 lows and it looks like a completed “initial” move down. If we do get a bounce, we might see the 977 – 984 zone which would be a terrific risk/reward SHORT.

    Play at your own risk.

    It should be interesting for folks to observe that when the SP500 looks terrible, gold goes up. When the stocks look better, gold gets hit. So, if you’re long stocks and long gold, you might be spinning your wheels a bit. If you’re in the Peter Schiff school of thought and you’re short stocks/long gold, then you’re very much leveraged for the end of the world as those two assets have seen some nice inverse correlation. Something to ponder…

  57. Now that Barry’s gone all Swedish:

    Smor och brod gor kinder rod !!!

    (Butter and bread makes cheeks red !)

    This was on a little wooden sign in our kitchen while growing up.

  58. tranchefoot says:

    @AT,

    I always appreciate your technical insights. How likely do you think is a bounce to 977-984 considering the S&P met strong resistance at 780 today? You seemed to have changed your mind about a quick trip down to the 600′s. What’s looks new to you? Thanks in advance.

  59. rww says:

    Tranche, I think AT was referring to gold price there. Great call, AT, on the S & P 780.

  60. tranchefoot says:

    oh. thanks. (sheepish)

  61. Marcus says:

    I have to say that I really enjoy reading your blog. Thank you and keep up the good work. I ordered your book a long time ago, and I am disappointed that I have not been able to read it due to your difficulties with your publisher.

    Anyway, I am contacting you because I would really appreciate if you keep hammering the point about forcing a bankruptcy of insolvent banks along the lines of WaMu. I only wish I could reach as many people as you do with your blog. That is why it is important that you keep making the point. In fact, if you think it is a good idea, could you please make a comment about my basic plan?

    1. FDIC mandated forced bankruptcy of insolvent banks that can not obtain capital in the capital markets and require government assistance where all owners, both debt and equity, are wiped out
    2. Senior management and board of directors are replaced with both management from outside and inside the bank and with independent/knowledgeable board of directors outside and inside the industry
    3. Then the government immediately IPOs each bank separately where the new bank is essentially the same but with out its debt, senior management, and board of directors
    4. All funds generated from the IPO minus any transaction costs go to the previous owners starting with the most senior in the capital structure all the way down the line if funds are available

    I understand that in this environment an IPO of a bank would not result in the “most” value, but the alternative is a disorderly bankruptcy or our government’s current approach.

    This could all happen virtually overnight. I will post this on your site as well.

    Marcus

  62. veritatis cupitor says:

    I agree with your approach, BR.

    What I don’t understand is why the taxpayer is being slayed prior to the “at risk” parties (common/preferred stockholders, bondholders, other unsecured creditors, etc) in many of the recent bailouts. I must be missing something. Just look at the balance sheets of the top banks. There are plenty of parties that should be in line for absorbing damage PRIOR to the taxpayers. Can someone enlighten me as to why this is not happening? Is it all related to the unknown risk created by credit default swaps and the like?