Bank of America Nationalization Would Shock, Not Help, Economy

On December 11, 1930 the Bank of United States failed setting off runs on numerous other banks that had refused to come to its aid. It was only one of the 352 banks that failed that month but its failure had worldwide repercussions, because many thought it was owned by the federal government. It was actually a relatively small state-chartered bank with slightly over $200 million in deposits located in New York City. But - it had an imposing name!

In the aftermath of that confidence shattering failure it was determined that no newly chartered bank would be allowed to use “United States” in its name. Of course that did not affect the Bank of America (BAC), which was already operating under that name.

Those now shouting fire in the bank theater would do well to read about the failure of the Bank of the United States. That bank was not nearly as large or as important as its name implied, but its failure helped usher in the last depression as it helped erode confidence at home and abroad.

By contrast, the Bank of America is a truly dominant bank that holds more than 10% of the total deposits of the entire banking industry. It claims that 50% of the people in the Unites States are customers of the Bank of America.

Those talking heads who daily spread the view that the Bank of America needs to be nationalized so that this economy can turn around are, at best, illinformed. They have no background in banking and they fail to appreciate the shock such an announcement would have domestically and internationally.

Comments

[pearl2k:]

Wachovia became Wells Fargo without so much as a shudder. How would BOA be different? Please elaborate.

What would a BOA receivership look like to the average Joe in terms of the bank-run/shock/chaos scenario you're proposing. And hasn't the FDIC already extinguished that flame by raising the level of deposit insurance on 100% of the deposits in the industry?

Feb 22 10:28 AM

[pragmist:]

Dr. Baker, you have hit the nail right on the Head.
Congratulations!!
I am sure many bogus shorts will take issues with you.
They will use all kind of comparisons.
I probably think there is huge external money (outside USA)
trying to undermine USA.
This is economic terrorism being launched against western banks.
It is Economic Talibanism.

Feb 22 10:45 AM

[bertil:]

I can only tell you what I will do if BoA fails; Take all my available cash out out of my bank. It happens to be JPM, but what the heck. I get near 0 interest anyway. And I think there might well be significant chaos with a freeze or redemption limit.

Feb 22 10:56 AM

[Ranchr:]

If the Bank of America were Nationalized, who would step up and buy it Wells Fargo? And, who gets stuck with the toxic stuff? The taxpayers! Nationalize CITI and BAC, you sell off their assets creating the world's largest banking monopoly, the TaxPayers keep all the bad crap and this is somehow good for us.

Has anyone determined how much of the common stock in BAC and CITI are held in 401, IRA and other retirement accounts?

Nationalization would essentially wipe out those individuals. It's okay to blame the fat-cats but what about the small investors?

People have said the bondholders and preferred shareholders wouldn't be wiped out, just the common stock shareholders.

Sounds like people are willing to throw the small people under the bus but they will protect the fat-cats at all cost.

The world's largest banking monopoly; destroy more than scores of millions of retired and near retired portfolios; have the government (US) lest holding the toxic assets...that a brilliant idea!

Feb 22 11:03 AM

[mr grumpy:]

I am a retired person. I own common and preferred stock in BofA. Its my understanding that if they do nationalize BofA I got toilet paper !


On Feb 22 11:03 AM Ranchr wrote:

> If the Bank of America were Nationalized, who would step up and buy
> it Wells Fargo? And, who gets stuck with the toxic stuff? The taxpayers!
> Nationalize CITI and BAC, you sell off their assets creating the
> world's largest banking monopoly, the TaxPayers keep all the bad
> crap and this is somehow good for us.
>
> Has anyone determined how much of the common stock in BAC and CITI
> are held in 401, IRA and other retirement accounts?
>
> Nationalization would essentially wipe out those individuals. It's
> okay to blame the fat-cats but what about the small investors?<br/>
>
> People have said the bondholders and preferred shareholders wouldn't
> be wiped out, just the common stock shareholders.
>
> Sounds like people are willing to throw the small people under the
> bus but they will protect the fat-cats at all cost.
>
> The world's largest banking monopoly; destroy more than scores of
> millions of retired and near retired portfolios; have the government
> (seekingalpha.com/symbo...) lest holding the toxic assets...that
> a brilliant idea!

Feb 22 01:04 PM

[financeseeker:]

why so much hype about BAC....what happened to Citi?

Feb 22 01:15 PM

[362012:]

I own preferred shares of BofA and Citigroup. If the government buys preferred shares in these banks, I believe that I should be a partner, rather than losing it all from nationalization.

Feb 22 01:19 PM

[freechoice:]

Me thinks you have a very very big position in BAC though I cannot prove it
All banks have overvalued their assets (toxic) and havnt followed asset ratios to loans so WHY should us the taxpayers be saddled with their bad irresponsible actions

Bankrupts the banks that are in trouble, nationalize the failing banks,yes tough medicine but in the outcome the banks will be stronger

the other choice is to keep pumping and printing money and trying to cover all the leaks in the Banks... ie throw more money after bad money... the Banks will start to ask for more and more ...when will it end?

perhaps BA and citigroup, and others will bankrupt US if not already!!!

enough said... NATIONALIZE the failing banks and remove the toxic assets now

Feb 22 02:08 PM

[Berninvestor:]

Great article Dr. Baker. Also great comments by pragmatist and Rancher. It amazes me as I read many of these articles the past few days, how many people criticize the greed and ethics of some of these companies in trouble. At the same time they're in favor of tactics like unethical naked short selling, as well as credit default swaps, while they're calling long term investors dumb and stupid. Why punish innocent ethical shareholders who really make our capitalistic system work? Throw out the unethical bad managers, maybe even resorting to "clawback", throw out the short sellers, the gamblers, and all of the unethical people who are destroying our system!

Feb 22 05:36 PM

[CJJ:]

The banks are insolvent TODAY. Banks are basically wards of the state in private hands. People who think you let these big banks fail and magically the problem goes away are living in a dream world.

Once people realize we all need to pay for this either way and plans that help those who acted irresponsibly is a necessary evil. No one is arguing with the logic, however your ideals are what to do to try and prevent a fire. Preventing a fire is an irrelevant endevour when there is an inferno spreading. Would you rather help out, god forbid, the people who started the fire to put it out? Or do you just want to stick to your guns and hope the fire goes out on its own before it takes you down as well.

The fires already started. Lets not bicker about who started it. Put out the fire. People will remember who and why it started.

Feb 22 05:42 PM

[sourceview:]

I must preface my remarks by: "in my opinion; I owned both stocks and realized losses, I don't own any bank stock now:

BAC is a very competent class A predator. BAC is differentiated from Citibank mainly by issues of pure incompetence at C at many layers of their management. Nationalizing Citibank is a no brainer. BAC should also be nationalized.

Remember, BAC was "forced" to take funds from Feds to "mask" the banks who really needed it? Sheer misdirection! The Truth is that it was Bank of America (along with the Citibank losers) that needed those funds,

BAC was the true weak one (and Thain realized this - hence his 8 billion dollar bonus heist). BAC still does need a citizen handout of at least a Trillion to be safe.

BAC is still hiding its MAJOR LOSSES from defaulted credit cards, no doubt brought on by its arbitrary system wide increase to over 30% APR for everyone not personally "connected". There is a strong rumor that BAC is taking its defaulted credit card holders and financing its REO's to them by including the card debt on new mortgages at 5% 30 year fixed. Similar deals are working for homeowners in danger of foreclosure! Every lawyer in the USA is counseling their clients to default on ALL debt, in order to bolster the argument that they need a modified mortgage. Seems to be working!

Its stockholders of record, who bought the stock in the 30 to 60 range are looking at $3.81 Friday? The great mass of individual stockholders WOULD NOT suffer if BAC were nationalized. Does it matter to them if they realize 3.81 per share more long/short term loss? Not really. They will be in the hole for life, as will their already decimated 401ks. Best to cut the BAC house of cards at the balls while it still has a vestige of strength left. Even if Lewis resigns as he should, since this crap was all his idea, that should not deter nationalization.

USA is no longer a capitalist country anyway, especially for those fat cats with their hands out.

NO ENTERPRISE IS TOO BIG TO FAIL.

Feb 22 05:44 PM

[grand poobah:]

You can complain or you can fix.
Please go to my site and see what I believe to be a well thought out solution to the current foreclosure / real estate crisis that would save the banks.

Feb 22 07:26 PM

[Aristophanes:]

Bank failure is measured differently now than in the 1930's. Back then it was the run on the banks that caused the most difficulties.

The FDIC solved that problem quite effectively. Most FDIC takeovers are of little concern to the depositors.

Now it is the assets bartered in the unregulated "shadow banking system" that are depriving the banks of capital. There is no mechanism to divest banks of their bad, depreciating and impossible-to-value purchases. No one trusts BoA and Citi's balance sheets as the mortgage market continues to decline, with commercial real estate, student loans, and consumer credit also on a downward trajectory.

So the restated claim you make about "… 50% of the people in the Unites States are customers of the Bank of America" actually adds fuel to the fire that the bank should be nationalized. At that point its failure to account for the systemic risks it bought are threatening an even larger chunk of the citizenry. Citis is dead,too. In fact, in worse shape than BoA.

No bank should have that much systemic risk on its books and that much value to the economy. The market is voting with its $$$'s.

They are simply too big.

Feb 22 09:10 PM

[Bobco23:]

BAC and C shareholders have already been effectively "wiped out." A 91.3% decline in 52 weeks qualifies as a "wipe out" in my book.


On Feb 22 11:03 AM Ranchr wrote:

> If the Bank of America were Nationalized, who would step up and buy
> it Wells Fargo? And, who gets stuck with the toxic stuff? The taxpayers!
> Nationalize CITI and BAC, you sell off their assets creating the
> world's largest banking monopoly, the TaxPayers keep all the bad
> crap and this is somehow good for us.
>
> Has anyone determined how much of the common stock in BAC and CITI
> are held in 401, IRA and other retirement accounts?
>
> Nationalization would essentially wipe out those individuals. It's
> okay to blame the fat-cats but what about the small investors?<br/>
>
> People have said the bondholders and preferred shareholders wouldn't
> be wiped out, just the common stock shareholders.
>
> Sounds like people are willing to throw the small people under the
> bus but they will protect the fat-cats at all cost.
>
> The world's largest banking monopoly; destroy more than scores of
> millions of retired and near retired portfolios; have the government
> (seekingalpha.com/symbo...) lest holding the toxic assets...that
> a brilliant idea!

Feb 22 09:12 PM

[Syl:]

I own common shares of B O A. I had read in many financial magazines that bank stock was where to be. I believed them so over the years I accumulated several shares of BOA and USB. I do not want to lose many dollars to nationalization. Who would buy the toxic waste? Some wealthy people would get a terrific bargain by buying BOA in a fire sale after the taxpayers have picked up the waste.

Noone has mentioned the nationalization of GM, a company that would solve its problems if the $53 per hour production workers would take a $2 an hour reduction in pay. This action alone woud save GM $3,904,000 per day. Let's see--244,000 employees times $2 per hour for 8 hours equals $3,904,000 This figure does not take into account that skilled workers such as tool and die makers get up to $73 an hour. No politician has given a peep for this idea. The union has agreed to a small reduction in health benefits. Now if we get a national health bill the union has in effect given up nothing to save their jobs.

Feb 22 10:55 PM

[Blackeyebart:]

You will not lose dollars to Nationalisation. Any losses will be due to bank failure, which is fairly a responsibility of management, irrespective of the circumstances.

In the event of any bank failure the Government will act to try and limit flow on damage. This won't help you, but it might help many others, including, long term, the taxpayers.

The Government's choices are to engineer a buy out, liquidate or nationalise. None of these are good for you.

Nationalisation isn't the problem. Bank failure is the problem.


On Feb 22 01:19 PM User 362012 wrote:

> I own preferred shares of BofA and Citigroup. If the government buys
> preferred shares in these banks, I believe that I should be a partner,
> rather than losing it all from nationalization.

Feb 24 03:16 PM