Tuesday, February 10, 2009

The Case for Nationalization?

The NY Times reports Geithner's plan prevailed. As Mish comments:

Notice how insane this is. The market cap of Citigroup(C), JP Morgan Chase(JPM), and Bank of America (BAC) combined is $158 billion, yet the program is going to provide an initial $250 billion to $500 billion (with more insanity coming) just to deal with "soured mortgage-related assets".

I'll add in Wells Fargo (WFC) to make his point even more clear. In addition, it is important to note that the equity only has this value based on the assumption they were going to be bailed out.


  1. Is there any way that the banks can be nationalized without new legislation? If there is, I agree that it is a travesty it is not being done. If there isn't I can't see a way to do it. Is there any way that the Senate Republicans would allow a bill to pass that nationalized the banks?

  2. This was a great post.

    Don the libertarian Democrat

  3. It appears the "bailout" will not work because it was not flushed out at the time of presentation. The Market acted appropriately, however we should see the government take over all bad mortgage loans and rent lease or sell these properties over time. just the maintenance workers needed would be a economic stimulus bill.

    In time the plan will be provided. If solving the mortgage question is dealt with the financial problems will go away.

  4. it's kind of funny how different people react to different data. In spite of hype, these banks should fail. Much of the deposits are insured and the people in charge of the banking system need to be fired, including the senate oversight committee chaired by Barney Frank. If my company was in a similar situation, it would fail, but then, there are not a bunch of politicians that would have to admit that their ideas are dangerously wrong. Just look at Japan, that is where we are headed, 10-15 years of economic stagnation.

  5. Yes, wiping the shareholders does not leave you with solvent banks.

    We need to recapitalize the banks with expiring scrip. The banks can lend the script with a lower rate because the script is negatively yielding. They get a spread to add to their clean balance sheets & the economy gets an instant boost from incentivized spending by the borrowers.

    Further, the scrip could be geared toward consumables/expendible items such as restaurants, concerts and liquor. That way, it won't get stuffed into an inflation hedge mattress like gold bars, etc.

    David Ricardo