Nationalizing Bank Losses

Tyler Cowen has a new argument against nationalization:

Say that banks are in the red by $2 trillion for ever and all eternity. Taking over the banks simply means that the government picks up these losses as owner. Government ownership makes it less likely, not more likely, that bank creditors will "take a haircut."

There's a certain amount of truth to this: nationalizing banks means nationalizing their net losses. But on the other hand, overpaying for their toxic assets means nationalizing their gross losses.

The problem with Tyler's argument is that he's dealing in extremely small probabilities -- specifically, the chances that the creditors of too-big-to-fail banks will end up taking a haircut. And I'm not even sure his statement is true.

On the one hand, it's possible that the government will impose a haircut on those creditors when it nationalizes the banks. On the other hand, how else can bank creditors take a haircut? Too-big-to-fail banks, by definition, can't default: the government won't let them. And they're too big to have their assets transferred to a larger institution, as happened to WaMu.

So unless you have a plan for fixing the banking system which clearly does involve bank creditors taking a haircut, I'm not sure this argument carries much weight. Meanwhile, nationalization has lots of good arguments in its favor: it gives the government future upside, it allows the government to split the banks into small-enough-to-fail chunks, it minimizes the risk to the dollar, it doesn't involve sticking your finger in the air and coming up with a hard price for highly-illiquid assets, and so on and so forth.

The one argument no one is making in favor of nationalizing the banks is that doing so will somehow make the banking sector's losses go away. It won't. But that's not a reason not to do it.

Comments

[auto44:]

When you take about letting banks fail we need to realize that the FDIC has only one hundred billion in assets to insure deposits. Citi alone has six hundred million in so called insured deposits. The smaller banks that failed were easily covered. Gold anyone?

Feb 01 12:54 PM

[ecliptix543:]

Eliminate cash and everyone's ability to participate in civilization is reduced to nothing more than a number on a screen. What happens if the electricity goes out? Or the network used to facilitate such transactions is hacked or damaged? Or if I forget my wallet and would like to purchase a soda with the now-useless change in my car's ashtray? Sorry sir, but it seems a bit too fragile a system for my tastes.


On Feb 01 09:07 AM chris williams wrote:

> There is the opportunity for a better, more positive result of the
> banking crisis - and it won't cost the tax payer anything.
>
> The first point is that the 'good bank' concept should be based on
> what it does, not how banks are able to escape their own mistakes.
> The good bank should be established, either with the existing commercial
> banks or as a government entity, that makes loans to small businesses
> at favorable rates. We suggest three year loans at 2% per annum,
> particularly geared to encouraging capital expenditure by the businesses
> - as the most likely generator of economic activity now that consumers
> are withdrawing from that role.
>
> How would this be financed? We look to support the retiree and other
> fixed income investors who are suffering from very low income levels
> now that rates are so low - with a 5% per annum interest payment
> for them.
> This will reduce the number of people needing to have other aid -
> and will allow people who deserve peace of mind in their later years
> to rest easier during these turbulent times.
>
> So, how do we square the basis of this not costing the tax payer
> when there is a 3% loss on what is potentially a $5 trillion book,
> i.e. a loss of $150 billion before provisions for bad debts?
>
> Let me start by saying that even if the government did make such
> a loss, this is a whole lot less than is being currently paid out
> for the banking mess.
>
> However, I will refer you to work we are conducting in the European
> Union where VAT fraud runs at $150 billion per annum, being 10% of
> the total tax take. A reduction of this fraud, by modernizing the
> tax system will pay for the equivalent investment in the EU in full
> - even before considering what other benefits can be made in reducing
> corporate tax fraud rates.
>
> In USA, the same opportunity to have criminals finance the cost of
> the 'good bank' program exist, not least in the current Sales Tax
> evasion, running at around 17% of the total activity.
>
> There is a specific area that could increase efficiency and reduce
> fraud and other criminal activity - namely a move to greatly reduce
> the role of cash in all business activity.
>
> The governments need to make any support for banks conditional on
> their working to support a debit card-based replacement for cash
> in as many areas as are possible. We recognize that this is a big
> project, but the rewards are enormous, not least in the reduction
> of criminal activity.
>
> We know that banks love inefficiency - for example, they have managed
> to delay the implementation of SEPA (a cost-effective, fast transfer
> of funds between Euro-based countries) for over ten years!
>
> Now we (the government and the tax payers who fund it) have the upper
> hand for once with the banks. It must be used to force through the
> type of fundamential change that is in everyone's interest - apart
> from the criminal and those who want to create inefficiency for commercial
> reasons.
>
> I hope that President Obama's team is ready to look outside the box;
> and one last word on using cards for payments - don't accept that
> the current fee structure for credit cards is the correct one. Our
> program in Europe is geared for small businesses to make B2B payments
> at a fixed transaction cost of $0.25, which if compared with interchange
> fees is 1/100th of the cost on a trade of $1,000.
>
> The program can be geared to the B2B market initially, albeit the
> real potential is there for all payments moving to electronic solutions.
> The reduction in the administrative burden for business is (at least
> in Europe) as large a number as the reduction in fraud - and I believe
> this will be the same in USA.
>
>

Feb 01 01:25 PM

[Publicliter...:]

I think there is a basic assumption that is wrong. Banks simply DO NOT have additional capital to lend. Any excess will easily go to loan losses as a result of the home price decline. Yes, this does further exacerbate the problem because they are now hurting the private sector for leveraged companies. But, telling a bank to lend more is like telling someone to eat all the rations on a raft lost at sea!

So, the domino has fallen from the house price bubble, to the banks residential real estate portfolio, to the private sector businesses. If we don't stop it, it will domino into hitting the commercial loans then back the banks balance sheets and certainly cripple the banks in a Depression style insolvency.

I think the core issue needs to be addressed, but this is actually a bit hard to identify (esp. for the government). The core issue is that our financial system is flawed and that our model allows, perhaps encourages, executives to take on excessive risk for excessive short term return and compensation. Trusting a banker to act for the greater good, is a little naive on Greenspan's part.

I think the best idea I've finally heard suggested is increasing capital requirements on a sliding scale based on profits. A variation of this was suggested at Davos. This stifles excessive growth and could well prevent bubbles. Bubbles are the banks worst enemies and the regulation needs to be put in place to prevent it in the real estate sector at least.

Now, the only way to fix the system is to capitalize the banks, stop the job losses, and smooth the home prices at the same time. Easier said than done, especially while not inflating one's currency like Argentina.

On Jan 31 01:08 PM johnny g wrote:

> I have an idea that can help resolve the problems facing both our
> economy and financial industry. Front lines reports from academia,
> government, and the media explain in good measure that banking industries
> uncertainties and fears regarding asset viability on their own and
> others balance sheets have created immovable road blocks to reasonable
> distribution and capital access.
>
> The idea seeks to collapse the period of time to which a more predictable
> and reliable flow of capital through our system can be arrive at;
> it cannot in and of itself resolve all systemic problems. The limited
> and uncertain access to capital has in large measure hobbled our
> collective economic system; interested parties to productive assets
> have been beset by a vicious cycle of pessimism and diminishing valuations,
> many times leading to a complete loss to owners and counter parties.
> The recommendation is designed to impose upon the banking system
> requirements to fully deploy their capital, with the aim of arresting
> this downward cycle and arriving at the nexus where collateral valuations
> are affirmed and once again become a measure of strength and not
> weakness.
>
> The basic tool and in this solution is taxation. A new piece of legislation
> is to be formed in which banks are taxed when not meeting the required
> leveraging minimums, and somehow rewarded when they demonstrate full
> leveraging deployment. Despite the cajoling of the Feds and Treasury
> after massive capital injections and asset swaps, the banking industries
> collective uncertainties are preventing their raison d'être, banks
> continue to under deploy and hoard capital, this is where we are
> collectively bogging down.
>
> As commercial banks comply with new leveraging requirements, they
> deploy capital to the most favorable credit risk. A new competitive
> lending environment will spring forth; banks will compete with other
> banks to actively seek out the best risk reward borrowers for their
> offerings, or be subject to this new Federal tax or penalty. This
> new velocity of money will energize our economy, restore asset predictability
> and grow balance sheet valuations without further deficit spending.
>
>
> This novel catalyst along with other primers will reduce the distance
> and time that the wheels of Capitalism need to travel before growth
> and optimism is restored; preventing unneeded failures, losses, and
> human hardship due to degrading asset valuations and capital deprivation.
>
>
> Let the chip fall where they may there after. A forced renew will
> have begun.

Feb 01 01:54 PM

[farmer448:]

So lets see if i have this right.

If we let the banks go bankrupt and let the legal system sort out the mess then the common and preferred stock holders will get wiped out, the debt holders will be converted to equity holders (including what ever CDO's). Of course this will take time and their will be chaos and rioting in the streets because the big national banks will be in the toilet while local/regional banks will survive.

if we nationalize the banks, the management, the common and preferred sotckholders get wiped out, Bank debt holder will probably be made whole through some equity and some new debt and US citizens will be on the hook for a 30-40% haircut. (I am assuming things will be as bad as the savings and loan crisis where I have read the US took 300 billion of bad debt and recovered 200 billion.
The far right will scream we are now a socialist nation with the government replacing management. (Of course we now know all to well how the current Boards of DIrectors and Management have done in maintaining a healthy finance system)

If we continue with TARP, the management stays, the stockholders (common and preferred) get a free lunch, the debt holders are assured that they will continue to be whole, the US citizen will take 100% of the haircut and the dirty commie liberals will call it all coporate welfare.

The only problem is the government is already screwed. In the past 8 years we have more that doubled thenational debt, appointed political hacks into jobs requiring macro-economic competence and sensitivity, have a legal system that no longer respects the rule of law and I can go on and on.

So where is the reboot button?

Feb 01 02:21 PM

[Unknown Inv...:]

Sleepless_

You have misread my proposal. It is just the opposite of your response. The concept is to tax or penalize non deployed capital.

It would Federally mandate full capital deployment from bank deposits. It is forced capital distribution under penalty of tax. What more can we do that could add capital hydration to business and public??


On Jan 31 10:24 PM sleepless_on_wall_stre... wrote:

> johnny g,
>
> The problem with your proposal is that it incentivizes the banks
> not to lend, but hold onto as much money as they can to get the tax
> break. The bank that males more loans will be penalized by paying
> more taxes.
>
> In general, I think tax incentives are a good way to help businesses
> develop, but, in this case, it would work against the public interest.

Feb 01 02:38 PM

[mediapro:]

One final observation to these manipulative solutions:

Communism won!

Feb 01 03:03 PM

[auto44:]

Why do you only include the last eight years, the history goes back a lot furthur than that. Starts with red lining during carter administration. The gov't lost disipline long before bank management did.


On Feb 01 02:21 PM Farmer448 wrote:

> So lets see if i have this right.
>
> If we let the banks go bankrupt and let the legal system sort out
> the mess then the common and preferred stock holders will get wiped
> out, the debt holders will be converted to equity holders (including
> what ever CDO's). Of course this will take time and their will be
> chaos and rioting in the streets because the big national banks will
> be in the toilet while local/regional banks will survive.
>
> if we nationalize the banks, the management, the common and preferred
> sotckholders get wiped out, Bank debt holder will probably be made
> whole through some equity and some new debt and US citizens will
> be on the hook for a 30-40% haircut. (I am assuming things will be
> as bad as the savings and loan crisis where I have read the US took
> 300 billion of bad debt and recovered 200 billion.
> The far right will scream we are now a socialist nation with the
> government replacing management. (Of course we now know all to well
> how the current Boards of DIrectors and Management have done in maintaining
> a healthy finance system)
>
> If we continue with TARP, the management stays, the stockholders
> (common and preferred) get a free lunch, the debt holders are assured
> that they will continue to be whole, the US citizen will take 100%
> of the haircut and the dirty commie liberals will call it all coporate
> welfare.
>
> The only problem is the government is already screwed. In the past
> 8 years we have more that doubled thenational debt, appointed political
> hacks into jobs requiring macro-economic competence and sensitivity,
> have a legal system that no longer respects the rule of law and I
> can go on and on.
>
> So where is the reboot button?

Feb 01 03:14 PM

[auto44:]

Why do you only include the last eight years, the history goes back a lot furthur than that. Starts with red lining during carter administration. The gov't lost disipline long before bank management did.


On Feb 01 02:21 PM Farmer448 wrote:

> So lets see if i have this right.
>
> If we let the banks go bankrupt and let the legal system sort out
> the mess then the common and preferred stock holders will get wiped
> out, the debt holders will be converted to equity holders (including
> what ever CDO's). Of course this will take time and their will be
> chaos and rioting in the streets because the big national banks will
> be in the toilet while local/regional banks will survive.
>
> if we nationalize the banks, the management, the common and preferred
> sotckholders get wiped out, Bank debt holder will probably be made
> whole through some equity and some new debt and US citizens will
> be on the hook for a 30-40% haircut. (I am assuming things will be
> as bad as the savings and loan crisis where I have read the US took
> 300 billion of bad debt and recovered 200 billion.
> The far right will scream we are now a socialist nation with the
> government replacing management. (Of course we now know all to well
> how the current Boards of DIrectors and Management have done in maintaining
> a healthy finance system)
>
> If we continue with TARP, the management stays, the stockholders
> (common and preferred) get a free lunch, the debt holders are assured
> that they will continue to be whole, the US citizen will take 100%
> of the haircut and the dirty commie liberals will call it all coporate
> welfare.
>
> The only problem is the government is already screwed. In the past
> 8 years we have more that doubled thenational debt, appointed political
> hacks into jobs requiring macro-economic competence and sensitivity,
> have a legal system that no longer respects the rule of law and I
> can go on and on.
>
> So where is the reboot button?

Feb 01 03:14 PM

[Unknown Inv...:]

PublicLiterature,

I completely agree with you, that the underlying problem is that there are a lot of notes on assets (homes) which are underwater.

If history tells us anything at all. Given a period of time and inflation home prices increase, as real assets are a safe guard against inflation.

So how does one simultaneously bolster balance sheets under this cycle of diminishing values and put in place a new psychology and assurance that it is not an unsafe deflationary enviorment for home prices, without effectively having the government come in and remove foreclosed available inventory stock of homes on the market? (This is what this new capital injection into our banking system effectively does)

The only way I see this happening, and quite frankly the way it will happen is when we resurface out of this malaise, and the buyer in the market place see and act upon a market bottom.

Once the bottom is in place, greed and fear of non participation (Adam Smith hand) will do all it can to eliminate this negative cycle of pessimism and positively home price valuation. At that exact nexus, the dynamic of balance sheet affermation (banking self sustainablity) and tentative optimism can return.

Can you really call a bank a bank when it doesn't lend money and remains a zombie?? It's an capital sucking entity, non productive and a non contributor. How can there be no failures in our banking sector??? Capitalism requires failures as it rewards the successful survivors.

Bottom line.... asset values need to be affirmed. Until this happens we (everyone's balance sheets) remain in an Alice in Wonderland semi solid dream state. My suggestion does cost the tax payer any money and promotes and forces asset valuations...what more can you ask for??


Feb 01 01:54 PM PublicLiterature.org wrote:

> I think there is a basic assumption that is wrong. Banks simply DO
> NOT have additional capital to lend. Any excess will easily go to
> loan losses as a result of the home price decline. Yes, this does
> further exacerbate the problem because they are now hurting the private
> sector for leveraged companies. But, telling a bank to lend more
> is like telling someone to eat all the rations on a raft lost at
> sea!
>
> So, the domino has fallen from the house price bubble, to the banks
> residential real estate portfolio, to the private sector businesses.
> If we don't stop it, it will domino into hitting the commercial loans
> then back the banks balance sheets and certainly cripple the banks
> in a Depression style insolvency.
>
> I think the core issue needs to be addressed, but this is actually
> a bit hard to identify (esp. for the government). The core issue
> is that our financial system is flawed and that our model allows,
> perhaps encourages, executives to take on excessive risk for excessive
> short term return and compensation. Trusting a banker to act for
> the greater good, is a little naive on Greenspan's part.
>
> I think the best idea I've finally heard suggested is increasing
> capital requirements on a sliding scale based on profits. A variation
> of this was suggested at Davos. This stifles excessive growth and
> could well prevent bubbles. Bubbles are the banks worst enemies and
> the regulation needs to be put in place to prevent it in the real
> estate sector at least.
>
> Now, the only way to fix the system is to capitalize the banks, stop
> the job losses, and smooth the home prices at the same time. Easier
> said than done, especially while not inflating one's currency like
> Argentina.
>
> On Jan 31 01:08 PM johnny g wrote:

Feb 01 03:20 PM

[One Eyed Guide:]

Real estate/housing being underwater is an old style problem that the banking system can easily handle over time. Banks have a derivative problem (as BigAl and Tom stated earlier). Mortgage backed securities can work thier way out over time but Credit Default Swaps (CDS) will wipe out anyone who issued them. The solution is to give bank creditors a haircut by allowing issuers to default on CDS's without penalty by simply returning the premium. Anyone (hedge funds, for example) who can't return the premium goes bust so you still clean out some of the real dead wood without destroying needed financial structure.

Feb 01 04:05 PM

[Firat Ünlü:]

For anyone relying on home values to appreciate, have a look at this chart:

static.seekingalpha.co...

I am no expert on banking so I'll probably be totally off but what about letting the banks fail whilst at the same time covering deposits? Sure that should be cheaper?

Feb 01 07:22 PM

[mikeg3:]

I don't think you can constitutionally cancel a CDS contract unless the issuer goes bankrupt.


On Feb 01 04:05 PM One Eyed Guide wrote:

> Real estate/housing being underwater is an old style problem that
> the banking system can easily handle over time. Banks have a derivative
> problem (as BigAl and Tom stated earlier). Mortgage backed securities
> can work thier way out over time but Credit Default Swaps (seekingalpha.com/symbo...)
> will wipe out anyone who issued them. The solution is to give bank
> creditors a haircut by allowing issuers to default on CDS's without
> penalty by simply returning the premium. Anyone (hedge funds, for
> example) who can't return the premium goes bust so you still clean
> out some of the real dead wood without destroying needed financial
> structure.

Feb 01 07:25 PM

[mikeg3:]

That chart factored out inflation, a key driver of house price increases (and vice versa). Do you really think the fed can print a few trillion extra dollars without causing major league inflation once the worst of the downturn is over?


On Feb 01 07:22 PM Yamu wrote:

> For anyone relying on home values to appreciate, have a look at this
> chart:
>
> static.seekingalpha.co...
>
>
> I am no expert on banking so I'll probably be totally off but what
> about letting the banks fail whilst at the same time covering deposits?
> Sure that should be cheaper?

Feb 01 07:31 PM

[Firat Ünlü:]

"That chart factored out inflation, a key driver of house price increases (and vice versa). Do you really think the fed can print a few trillion extra dollars without causing major league inflation once the worst of the downturn is over?"

I know, but assuming inflation remains at normal rates how long would it take for the asset to get to the level they are valued at?
As for the second part, yepp, there's going to be massive inflation.
Having said that, why bother with this whole thing at all?
No point in saving the banks if the deposits will be 'inflated away'.

Feb 01 07:38 PM

[tonyb:]

let it all go down--the politicians will ensure this happens anyway. we are too far gone to stop the freightrain of deleveraging. it will be good in the long run to hit rock bottom over the next couple of years, with continued suffering for a few years thereafter. it is really something, the upper middle-aged folks and the elderly who have bankrupted their own children and grandchildren [by electing rotten corrupt incumbants over and over again and taking all the candie over the years] will end up loosing 2/3 to perhaps 3/4 of their retirement accounts, and the fed gov will be broke and have to cut their benefits too, and i do not think the young will kill themselves working so hard and paying high taxes, fees, gas taxes, etc. they may just work less and have less for the lost decade we are entering, and drive their former slavemasters [and the AARP] into the grave. get debt-free fast and waste not.

Feb 01 08:03 PM

[overtaxed42...:]

You know, after reading through most of the comments here, it becomes clear that many have no clue to what a nationalization of the banks really means. Not only do the current shareholders lose most if not all their equity remaining. But with a national bank system that essentially is just shifting control from one entity that screwed up to an even bigger entity that screwed up, we the people find ourselves yet again the ones taking it in the rear with no possibility of any future gain. Can anyone at all say that these bailouts do anything but bankrupt the people? All the FED is doing is ruining the once mighty dollar. And they have no right to even be in control of the money. Our Constitution requires that only Congress be in charge of the making and printing of money. Not some privately held institution(The FED) whose sole reason for existing is to manipulate the money supply through unrealistic financial games with interest rates and under the table deals with other central banks and lesser store front banks in order to increase the direct beneficiaries wealth and their legacies. Understand that there are only a select few families tied to those central banks and their illegal unconstitutional control of our money. Want to know what will happen when that money being printed hits circulation? The only reason the banks aren't lending is because when they do release that money, if they do, the value of all those dollars will wipe out the value of all the dollars then in the system. This is why the rest of the world is doing what we are by lowering interest rates and talking about nationalizing banks. Plus they are not converting their dollars to their own currency because they hold too many dollars and it will cause the same devaluation to happen to the rest of what they hold before they can get rid of it. It is why Iran converted all transactions once done in dollars to euros. Too bad for them that the same is happening to the euro. They will do this and declare a force majure that will mean the debts can not be repaid due to the currency being worthless. Then comes the next step of their plan. To offer a buy out rate on the then declared worthless dollar for pennies on the dollar. We the people need to remove from office all the politicians who are named BArny Frank, Chris Dodd, Charlie Rangle, Nancy Pelosi, and every other one of those spineless boobs who voted to give our money to crooks and thieves.
To give control of our banks to the idiots that forced them to make these bad loans through their socializing programs is like throwing gas onto a fire. Then you got idiots that I quote below who think taxing is the cure. Dumb ass, the taxing of companies does not ever occur. Those costs always get passed down the line to the only thing that can ultimately pay those taxes. Us. The people who work and create a paycheck to buy things with. Companies are just fronts. They do not pay taxes. Only people do. Behind that company is a group of investors(people) who know how to earn money to pay those taxes, not only for the ones they pay through income but also half of each and every employees. So the people creating jobs and making the money that gets spent and moves the world economically get taxed way too much as it is. We all are taxed beyond what is fair. Not to mention way beyond what receive in return for that money. I am sick of it. They need to be tarred and feathered and ran out of town. Let the banks fail. I could care less if every single one failed. It won't make a hill of beans of difference to any of ours futures. The writing is on the wall. It is so widespread and visible and some want to spend more(Obama) and give away even more(Obama) and thankfully he got one thing right, to cut taxes. He just needs to stop all spending and cut taxes to zero for all business. Imagine the economic stimulus that will result from that. Every business on the planet will want ot open its manufacturing here. With all those people employed to manufacture stuff for the world creates an unprecedented amount of income tax. Which is really wrong also. The IRS should be dissolved and replaced with a consumption tax.(FairTax) It is the only way regular people will ever get above the resistance line that the Fed and the lawmakers hold all of us down with. Tax tax tax tax tax. Stupid people say we need taxes so government can run. Baloney. We don't need so much government. Every one is a halfwit who could not succeed in any form of real business due to their inabilities as a good person with ethics and values that create wealth. Instead they focus on deceptive ways to strain more and more money from the people. Usually those ways are unethical, unfair and involve corrupt schemes. Call me a liar and I'll call you stupid. Open your eyes and see it all around you from local through state and all the way up to federal. Our government is so corrupt and rife with dirty deeds at such an enormous scale, they think that they are the untouchables. That they have found their golden seat of power and they shall be able to impose their will and their vision for themselves to gain, leaving the people in ruin and wanting and dependant upon them for all. I do not want them in charge of anything anymore. They are all failures. They have all failed. They should all be removed and replaced with competent, justworthy, ethically driven people that know how to do the job correctly that they failed at. Can you tell I too need the blood pressure meds? god they piss me off just throwing out numbers in the billions and now the trillions. You people don't even get it do you? There is no way out except for the banks to fail. It is just a matter of today or a week from today or a month. Most likely not more than a few. Days, weeks, or months? Hmmmm? That depends on what the emotions in the street are and if they are acted upon.
"The basic tool and in this solution is taxation. A new piece of legislation is to be formed in which banks are taxed when not meeting the required leveraging minimums, and somehow rewarded when they demonstrate full leveraging deployment."
That guy who wrote that is an idiot.

Feb 02 02:43 AM

[Unknown Inv...:]

I'm the guy your calling a dumb ass.

I think your the sort of nut case who runs up and down the street yelling to everyone in the neighborhood when the sun is up and when the sun is down, in other words your the neighborhood retard.

I dont believe you have the brain power to compreheand that when you tax banks for under deploying their capital base, it's a direct to the benifit to John Q Public, it's the proberibal stick that smacks the backs and heads of banks that don't want to origionate loans.

Or are you now in favor of transferring your tax dollars to these banking shenanigans without getting anything back for your investment.... Dumb ass


n Feb 02 02:43 AM overtaxed42long wrote:

> You know, after reading through most of the comments here, it becomes
> clear that many have no clue to what a nationalization of the banks
> really means. Not only do the current shareholders lose most if
> not all their equity remaining. But with a national bank system
> that essentially is just shifting control from one entity that screwed
> up to an even bigger entity that screwed up, we the people find ourselves
> yet again the ones taking it in the rear with no possibility of any
> future gain. Can anyone at all say that these bailouts do anything
> but bankrupt the people? All the FED is doing is ruining the once
> mighty dollar. And they have no right to even be in control of the
> money. Our Constitution requires that only Congress be in charge
> of the making and printing of money. Not some privately held institution(The
> FED) whose sole reason for existing is to manipulate the money supply
> through unrealistic financial games with interest rates and under
> the table deals with other central banks and lesser store front banks
> in order to increase the direct beneficiaries wealth and their legacies.
> Understand that there are only a select few families tied to those
> central banks and their illegal unconstitutional control of our money.
> Want to know what will happen when that money being printed hits
> circulation? The only reason the banks aren't lending is because
> when they do release that money, if they do, the value of all those
> dollars will wipe out the value of all the dollars then in the system.
> This is why the rest of the world is doing what we are by lowering
> interest rates and talking about nationalizing banks. Plus they
> are not converting their dollars to their own currency because they
> hold too many dollars and it will cause the same devaluation to happen
> to the rest of what they hold before they can get rid of it. It is
> why Iran converted all transactions once done in dollars to euros.
> Too bad for them that the same is happening to the euro. They will
> do this and declare a force majure that will mean the debts can not
> be repaid due to the currency being worthless. Then comes the next
> step of their plan. To offer a buy out rate on the then declared
> worthless dollar for pennies on the dollar. We the people need to
> remove from office all the politicians who are named BArny Frank,
> Chris Dodd, Charlie Rangle, Nancy Pelosi, and every other one of
> those spineless boobs who voted to give our money to crooks and thieves.
>
> To give control of our banks to the idiots that forced them to make
> these bad loans through their socializing programs is like throwing
> gas onto a fire. Then you got idiots that I quote below who think
> taxing is the cure. Dumb ass, the taxing of companies does not ever
> occur. Those costs always get passed down the line to the only thing
> that can ultimately pay those taxes. Us. The people who work and
> create a paycheck to buy things with. Companies are just fronts.
> They do not pay taxes. Only people do. Behind that company is a
> group of investors(people) who know how to earn money to pay those
> taxes, not only for the ones they pay through income but also half
> of each and every employees. So the people creating jobs and making
> the money that gets spent and moves the world economically get taxed
> way too much as it is. We all are taxed beyond what is fair. Not
> to mention way beyond what receive in return for that money. I
> am sick of it. They need to be tarred and feathered and ran out
> of town. Let the banks fail. I could care less if every single
> one failed. It won't make a hill of beans of difference to any of
> ours futures. The writing is on the wall. It is so widespread and
> visible and some want to spend more(Obama) and give away even more(Obama)
> and thankfully he got one thing right, to cut taxes. He just needs
> to stop all spending and cut taxes to zero for all business. Imagine
> the economic stimulus that will result from that. Every business
> on the planet will want ot open its manufacturing here. With all
> those people employed to manufacture stuff for the world creates
> an unprecedented amount of income tax. Which is really wrong also.
> The IRS should be dissolved and replaced with a consumption tax.(FairTax)
> It is the only way regular people will ever get above the resistance
> line that the Fed and the lawmakers hold all of us down with. Tax
> tax tax tax tax. Stupid people say we need taxes so government can
> run. Baloney. We don't need so much government. Every one is a
> halfwit who could not succeed in any form of real business due to
> their inabilities as a good person with ethics and values that create
> wealth. Instead they focus on deceptive ways to strain more and
> more money from the people. Usually those ways are unethical, unfair
> and involve corrupt schemes. Call me a liar and I'll call you stupid.
> Open your eyes and see it all around you from local through state
> and all the way up to federal. Our government is so corrupt and
> rife with dirty deeds at such an enormous scale, they think that
> they are the untouchables. That they have found their golden seat
> of power and they shall be able to impose their will and their vision
> for themselves to gain, leaving the people in ruin and wanting and
> dependant upon them for all. I do not want them in charge of anything
> anymore. They are all failures. They have all failed. They should
> all be removed and replaced with competent, justworthy, ethically
> driven people that know how to do the job correctly that they failed
> at. Can you tell I too need the blood pressure meds? god they piss
> me off just throwing out numbers in the billions and now the trillions.
> You people don't even get it do you? There is no way out except
> for the banks to fail. It is just a matter of today or a week from
> today or a month. Most likely not more than a few. Days, weeks,
> or months? Hmmmm? That depends on what the emotions in the street
> are and if they are acted upon.
> "The basic tool and in this solution is taxation. A new piece of
> legislation is to be formed in which banks are taxed when not meeting
> the required leveraging minimums, and somehow rewarded when they
> demonstrate full leveraging deployment."
> That guy who wrote that is an idiot.

Feb 03 05:54 AM

[jeff_progra...:]

What happens to employees with 401K ESOP in Bank of America. I am a former IT programmer who was laid off from the bank but have considerable assists in BoA stock in my 401K. If nationalized, do I risk losing all my BoA stock in my 401K?

Feb 03 08:41 PM

[monday1929:]

Let the share-holders sue the Board and management of Citi- Corpse for criminal negligence. Investing in Stocks has risk- a corrupt management. Mom and Pop should have noticed that Citi payed muti-billion dollar fines regularly for various criminal schemes at which it was caught.


On Jan 31 01:53 PM Ranchr wrote:

> Is anyone thinking about Mom & Pop shareholders in Citi and B
> of A, who bought them for the dividends and now have little of no
> dividends and the rush ti Nationalize will strip them of the equity
> too. This isn't all about the big investors, there are retirees that
> will be wiped out, if the banks are Nationalized.

Feb 04 08:01 AM

[thevoice@vo...:]

After having already spent 350bn via Tarp funds the idea of nationalizing banks should not even be a consideration for the government. Have we not seen the nationalization effects from other countries that chose to go down this path, how is Japan doing? France?India? The US banking industry today is one of the most regulated in the country, the housing bubble was caused largely by the government forcing banks to increase lending to the sub prime population. Once a bank is nationalized all decisions on investments must be approved by the government, there is no way that anyone in office can decide which investment is good and which is not. These decisions will most likely be made based on political influence, whoever lobbies most will get the prize. That is probably not a good idea for the future entrepreneurs of America nor any small business.

During the 1990s banks were encouraged to loosen lending by the strengthening of the CRA act, this enabled individuals with insufficient funds to attain mortgages. Fast forward to today and we have the end result of reckless lending for nearly a decade.

Still this could have all been prevented if not for the issuance of FAS157 effective November 15,2007 by the SEC and FASB . For those unaware fair value was redefined. This rule requires banks to mark to market instead of mark to model as previously calculated since the inception of FASB. Pre FAS 157 when an investment vehicle trades thinly (such as mortgage backed securities) the underlying holder of the investment is allowed to use its own assumptions on fair value, today it must be valued based on what it can be sold at in the open market. If I'm a bank and expecting to receive future cash flow of $1000 a month over the next 30 years on an loan of 200K for a total payment of 360k, based on todays fair market value and panic in the market the underlying issue has been written down to 40 cents on the dollar or approximately 80k and this is a conservative figure. This past October the FASB began tracking the effects of this rule to determine if any amendments are needed, a little too late in my opinion.

Back to our banks, in the current market it would not be wise to sell any of the troubled assets based on fair market valuation as there are not enough buyers which drastically reduces the price of the asset.These assets should be removed from balance sheets, by creating a bad bank and transferring assets for 90 cents on the dollar although these assets may very well be valued at 50 or 40 cents on the dollar. By allowing banks to transfer these assets it will improve transparency and most importantly make them investable again. No more capital injections! This move only deters private investors from investing in equity. The higher the purchase price of these assets the higher the relief on the balance sheet of the banks. This would without a doubt improve overall economic conditions at a faster rate than any other solution and also affords the government the opportunity of this plan to cost taxpayers very little or possibly nothing. First, all loans should be returned back to the government which so far has amounted to 350bn. Next step would be for the "bad bank" formation and transferring all troubled assets here. An extra step here could be the banks that transfer assets are also forced to invest in the bad bank and in essence recoup a percentage of the losses but not to profit. A step further would be the government selling a portion of the bad banks to private investors sometime down the road.

If it was my decision I would choose to do nothing and let the game play out the way it should. Many banks would fail, lending would only get tighter and a global recession would still last shorter than nationalizing. Once all the failing players are held accountable and become extinct only healthy banks are left with real balance sheets and the recovery may begin, lending will loosen and so forth begins the next expansion cycle.

While this is not a quick fix lets not forget we are already in this mess and the best solution to minimize the effect of these troubled assets to the economy would be to have them removed from the balance sheet. I don't believe a full recovery is likely in the event of this transfer to the "bad bank," but unless there can be another accounting method to accrue troubled assets only when they mature it's a start to the end of this mess and lets not forget the person asking for the loan is just as responsible as the one providing it.
[e-mail] / voicedup.blogspot.com

Feb 09 05:30 PM