Nationalize U.S. Banks

I have called here for the U.S. government to start nationalizing some of the financial institutions instead of either giving them money, backstopping their bad debts or buying their toxic waste. Why spend and/or backstop well over a hundred billion on Bank of America (BAC) and hundreds of billions on Citigroup (C) when the two combined now have a market cap of under $60 billion? Just buy them and end the pain. We can sell off the pieces or reprivatize them later.

Unfortunately, any talk of privatization tends to elicit a rather visceral negative response in many people. It seems so anti-American of a thing to do. It is socialism. And governments are notoriously bad at running businesses. Well folks, last time I checked, it looked like the current management at these businesses is not doing too well at running them, so why should we simply keep supporting them?

It makes no sense to me that my tax dollars are being spent to benefit the shareholders and bondholders of financial institutions that are technically insolvent. If you are a shareholder of one of these institutions at this point in time, you are not an "investor" at all, you are a speculator, a gambler, and you know the risks. You are simply betting that the U.S. has no taste for privatization - and you may be right - but I hope that if enough people get on the bandwagon and write their representatives then Congress and the Administration just might begin to understand this is our money and it should be spent to our benefit. Do not privatize the gains and socialize the losses. That, my friends, is anti-American.

In any event, some excellent financial minds, such as Taleb, Roubini and Krugman, are backing the idea, so it cannot be all that bad. And while our situation may not be entirely identical, privatization did work well in Sweden in the 1990s to stem its financial crisis, so it can work. Certainly better than simply flushing our badly needed dollars down the drain by giving them away.

Disclosures: I own some shares in GE, which is getting some government aid.

Comments

[James Wilson:]

If you Nationalize Banks then Nationalize Oil Refinerys too.
They are turning away oil shipments to keep a shortage of gasoline so the price remain high.

What us the difference ? Banks not making loans or making getting loans harder and the Oil refinerys artifically keeping the price of gas high so Americans can not have a extra penny to spend.

Feb 03 04:37 AM

[apppro:]

Your tax dollars went to a few short sellers that rumorboarded and naked-shorted our entire financial system into the toilet. Things didn't have to be this way.
1. Get rid of mark to market. have a 10% forced write down. stops the insanity.
2. Refinance the monolines. The start of all of this. Have the stimulus plan give money to municiplaities that write bonds. Dollar 4 dollar. BIGGER BANG FOR THE BUCK, and gets the private sector back into the game. Force the PImco's of the world to buy muni bonds and not just park their cash in treasuries.
3. Reinstate the up-tick rule.
4. Get rid of ultra ETF's. Also, since it really must be impossible to know what short positions are available- before hand - stop shorting of all ETF's. stop having the tail wag the dog.
5. Put an end to naked shorting and require the ACTUAL stock certificate number to be inputed before a short position can be covered.
6. Get the SEC involved with prosecuting gangshorting.
7. Decrease and/or increase capital gains taxes so they PROMOTE investing and DETER this 'trader mentality' we are soooooo involved with. Short term sales at 50% - long term at 5%.

There are many ways to fix things without trying to bail out and nationalize institutions that if we had the right regulations, wouldn't need it in the first place. Just stop the INSANITY!!!!!!!!!!!!

and oh I forgot the most important to help pay for all of this:

INSTITUTE A 65% WINDFALL PROFITS TAX ON ALL SHORT SALES RETROACTIVE TO 01/01/08.

Feb 03 07:15 AM

[apppro:]

AND I OWN SOME GE TOO AND THAT REALLY IS A TOTAL SHORT SELLERS DISGRACE!!!!!!!!!!!!!!...

Feb 03 07:24 AM

[this4now:]

Great idea. Let the very people who created the credit crisis by expanding credit to anybody, anywhere because they were "underproveledged", now run the funding function as well. Why not just put a sign around your neck Stalin....?

You idiot are you really that simple or do you write this crap to get responses?

Feb 03 07:38 AM

[Joyful Alte...:]

I favor the Swedish solution, as outlined in the article, but Appro has some great ideas, too. The government could do both, if it has the guts. Our finance system is broken, and borrowing money from abroad to fund investment bankers' bonuses for their incompetent work ranks somewhere between dumb and immoral.

Feb 03 08:37 AM

[jasonjim:]

Bravo, bravo, bravo! All or some of the below comments are a much better strategy in mending our economic problems than nationalizing our banking system. The question is will the big boys who are shorting everything in sight and making a fortune by doing so lobby strongly to prevent these improvements to the system from being implemented. We small investors unlike the big money boys do not have much say in how fairly the system works, even though we are being continuously screwed by the unfair rules in place. I say no to nationalization, and a resounding yes to making drastic changes to the system which favor the small investor.


On Feb 03 07:15 AM apppro wrote:

> Your tax dollars went to a few short sellers that rumorboarded and
> naked-shorted our entire financial system into the toilet. Things
> didn't have to be this way.
> 1. Get rid of mark to market. have a 10% forced write down. stops
> the insanity.
> 2. Refinance the monolines. The start of all of this. Have the stimulus
> plan give money to municiplaities that write bonds. Dollar 4 dollar.
> BIGGER BANG FOR THE BUCK, and gets the private sector back into the
> game. Force the PImco's of the world to buy muni bonds and not just
> park their cash in treasuries.
> 3. Reinstate the up-tick rule.
> 4. Get rid of ultra ETF's. Also, since it really must be impossible
> to know what short positions are available- before hand - stop shorting
> of all ETF's. stop having the tail wag the dog.
> 5. Put an end to naked shorting and require the ACTUAL stock certificate
> number to be inputed before a short position can be covered.
> 6. Get the SEC involved with prosecuting gangshorting.
> 7. Decrease and/or increase capital gains taxes so they PROMOTE investing
> and DETER this 'trader mentality' we are soooooo involved with. Short
> term sales at 50% - long term at 5%.
>
> There are many ways to fix things without trying to bail out and
> nationalize institutions that if we had the right regulations, wouldn't
> need it in the first place. Just stop the INSANITY!!!!!!!!!!!!

>
>
> and oh I forgot the most important to help pay for all of this:

>
>
> INSTITUTE A 65% WINDFALL PROFITS TAX ON ALL SHORT SALES RETROACTIVE
> TO 01/01/08.

Feb 03 09:01 AM

[maximaboy:]

Apppro, you hit the nail on the head! Your comments are spot on...I'd also like to disagree with the author on one point...I own BAC and GE and others and I have done exactly what the my financial advisors (plural) have told me to do....safe place to invest, good returns, part of a strong retirement strategy....and none of those shares have been sold so what your recommend wipes out the common investor, the mom and pop investor that doesn't have millions in the stockmarket, but has alot in comparison to their net worth. Why wipe out that value and further make it tough on those Americans who did what the "experts" suggested? Regrettably, I listened to my advisors and bought and didn't sell under the advice that "it will recover"....but to totally wipe out shareholder value across the board doesn't make logical sense in stimulating any economy...screw the short sellers, but not the ones who made honest efforts to invest with the information they had (albeit manipulated by those CEO's in charge).

Feb 03 09:02 AM

[D. McHattie:]

You are right that government is incompetent and that they would do a horrible job of running these institutions. That is why they should be sold off in pieces, as you suggest.

But they should be nationalized so that all that remains are healthy, profitable, solvent institutions who can then step into the vacuum left by nationalized institutions.

What we have now are bloated, incompetent, inefficitient institutions taking up space and taking up business that should rightfully go to superior enterprises.

Nationalize the insolvent and everyone wins. The consumer wins because they get a better and more efficient financial system. The taxpayer wins because they can stop throwing good money after bad.

The only one who loses are the speculators who are the only ones who would hold shares in these failing businesses and speculators know full well the risks they run.

Feb 03 09:08 AM

[Orly:]

If we nationalize C and BAC how do you handle their employees? Wouldn't they become government employees and hence part of that union? Then how do you fire them? How do you do anything with them other than watch their efficiency plummet?

If you nationalize C and BAC what will the best employees do? What will the good employees do? Clearly, they will leave and what will remain will significantly reduce the value of the assets.

And as another poster stated, who do you think is in C and BAC at this point? Even if some large institutions are still in there they will likely be able to get out before the nationlization happens. The small investors will lose everything. The people least likely able to absorb the loss.

Feb 03 10:54 AM

[Ferdinand E...:]

Let's see now. I worked in Australia, Singapore and maybe Portugal during the l990s, when they "nationalized/privatiz... the Swedish banks. An experiment that worked well, some people say and/or think..

Actually, it worked so well that I never heard of it. I read the local papers in Australia and Singapore, and the Financial Times in Portugal, and when I returned to Sweden I read the Swedish papers, and I never heard of this nationalization/privat... until I read about it about a month ago in SA.

Naturally the moronic head of the Swedish central bank in the "1990s" may have called what took place in Sweden a nationalization/privat... but if he did the thing to remember is that Econ 101 was about the best that he could do.

Feb 03 12:00 PM

[flow5:]

The government would manage the banks more conservatively than the bankers ever have or ever will. Carnage will always confront us.

Feb 03 02:55 PM

[klarsolo:]

You talk about banks being technically insolvent. What does this mean? That when you look at all their assets at fire sale prices and their liabilities at original value the net worth is negative? Is this really the way to go when the banks can probably earn their way out of this? Should young doctors be forced to file for bankruptcy because their net worth is negative due to huge student loans?

Feb 03 04:23 PM

[klarsolo:]

Also, can somebody tell me what the deal is with people being mad that their tax dollars are wasted? As far as I know banks pay on their TARP injections. Even getting 5 % return on your tax dollars is better than what the government usually does with them. And if the banks recover you even have warrants to harvest additional gains. Where is your problem again?

Feb 03 04:37 PM

[Syl:]

It is very easy to say "nationalize", but you fail to mention thay many who own the stock will lose many dollars to our government. If our government is smart enough to run a bank why did it let medicare and medicaid get in a worse financial shape than our banks. Whose dollars is the government using to operate medicare and medicaid? Why have so many state governments gotten into such bad financial shape? As Ben Franklin once said, "a government that can take care of every need can also take all you ever had." I don't like the bailouts, but if that failure of any restrictions on their use is any indication of how Washington is going to run our banks or auto companies may the Lord pity us.

Feb 03 08:34 PM

[Xorox:]

Well said. I am in strong favor of nationalization of the banking system, followed by reorganization, and re-privatization.

Sweden’s nationalization of banks (1992) worked fairly well for them and has been one of the ideas mentioned as a solution. However, nationalization has the stigmata of third world tactics associated with the term and the adverse polarization of the banking community and investors (bondholders and shareholders would be wiped out). But, we really do not have much choice when confronted with the massive expenditures, and taxpayer risk, required by other plans. We should nationalize a our larger banks (and major regional banks), perhaps renaming the process, with some smoke and mirrors, to a more palatable term. This is a much better alternative than partial recapitalization with failure (recurrent recapitalization, etc), or the very real risk of bankruptcy. We have already fundamentally nationalized AIG, Freddie Mac, Fannie Mae, and to a significant extent, BAC and CitiBank. Nationalization with reorganization and recapitalization is looking more and more attractive, and the risk to taxpayers under this scenario is less than other alternatives.

Feb 11 12:22 AM