sleepless_on_wall_street

A Tale of Two Banking Worlds

Does anyone want to offer some analysis (or even opinion) about why I should consider buying C? I have read some commentary the past couple of weeks recommending C as good investment, but I didn't bookmark anything so I don't where these comments might have been. I don't understand how a bank that appears to be undercapitalized (if you believe the stress tests) and is losing many billions quarter after quarter from operations can have any prospects other than selling off assets until it goes out of business.

Anybody want to enlighten me?

Privatize the Banks, Already

Aristophanes - - -

I agree in large part with your comment. I would suggest that capital structure (except for common equity) should be preserved as much as possible in nationalization (to maintain crediblity with investors, foreign and domestic) and that, although the government would be the owner, there should be independent management and boards of directors. People on boards should such as John Vogle, Bill Siedman, Paul Volker, Jack Welch, Warren Buffett, Prof. Joseph Stiglitz, etc.

Current management (all executive management) should be replaced.

And finally, you are almost certainly correct: Reworking these corporate entities will take time, maybe more than 1-2 years in some cases. That is why, although the government is the owner, we can not risk politicians being the managers. How much damage can political objectives do to redirecting banks? Believe me, we don't want to find ou.

Wall Street Breakfast: Must-Know News

I can't find fault with most of the complaints made by commenters. But I would like to think there is something better than having a "French style revolution". Can we have some proposals on what to do going forward? I would concentrate on defining how to prevent "too big too fail" from happening in the future:

1 Determining what was done by the "titans of Wall Street" that was counterproductive to proper functioning of the free enterprise system, prosecuting anything that was criminal;

2. Legislating to assure that which was technically legal, but hindered free markets from functioning efficiently, will not happen again;

3. Putting controls on those accepting government assistance that will assure the money is not abused and repaid promptly with interest.

We are where we are and we need to go forward in a positive way.

Nationalizing Bank Losses

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.

Furthering the Discussion on Bank Nationalization

nym, Concerned_Citizen and Tom Armistead -

You are doing a good job of getting both sides of this nationalization issue discussed. John Lounsbury said: "Let's keep the subject open for debate." That you are doing. Thanks.

Thinking the Impossible: Could Bank of America Go to Zero?

Harry Tuttle,

You wrote: "By the way, I have no position in BAC. I am, however, an American taxpayer."

I say you (and I) do have positions in BAC, as do all taxpayers. Our positions are counterparty to stock and bond holders and the only question remaining is which party is going to pay the other.

Furthering the Discussion on Bank Nationalization

John Lounsbury, great series of articles with good reference links.

Look for a series of three articles today by James Quinn which gives a broad picture of how our current crisis relates to the Japanese experience of the past 20 years. Their mishandling of insolvent banks was a major factor in producing 20 years of economic stagnation.

How can we get through to Washington? They don't seem to be considering the nationalization option for insolvent banks.

HELP!!!!!

Turning Japanese: The Audacity of Reality (Part 3 of 3)

James Quinn,

As usual, an excellent article filled with relevant data.

I would pick one factor as most important for the Japanese malaise: failure to clean out insolvent banks. Those banks sucked up monetary liquidity for over a decade and the after effects still persist today. This Japanese failure was widely criticized by economists and U.S. government officials throughout the 90's. With some of the same economic policy makers returned to Washington with Obama, we will not make the same mistake, right? So far, wrong, wrong, wrong. Paulsen and company started a process to "save the financial system" by saving the banks. Obama's team seems committed to following the same path.

STOP!!!!!

We can not save the forest by saving the dead trees. These are just fuel for the forest fire that will destroy the entire forest. CLEAN OUT THE DEADWOOD!!!!

I fear a problem is that the policy makers confuse saving their friends at C, BAC, AIG, etc. with saving the U.S.A.

Mr. Quinn, you are doing a great job. Thanks.

Is Nationalization Contagious?

Felix, a great question.

It might effect them negatively. That is a worry. It might be argued that they could also be supported to the extent that the implication could be that they would not be allowed to go to zero. I don't know how much that would help them because having an implied guaranteed price floor of, say, $5 for a stock currently at $15 or $20 may not provide that much support. If the price goes below $10, the implied support would have much more effect.

As far as wealth destruction is concerned, another $100B or so seems trivial compared to what has already happened. And thinking about that statement really scares me.

'The Change We Need' Is in Economic Direction

This is a paraphrase of a comment I just wrote in another comment stream.

The old religion was the use of credit (debt) to produce more credit.

The new religion should be the use of credit (debt) to produce the means of production of goods and services.

The old religion is related to Ponzi.

The new religion is related to economic growth.

The Obama Inauguration Rally Begins

Admittedly, short-term stocks look oversold. On a valuation basis, they look over valued. I find it interesting that the author did not hazard a guess about how long the Obama rally might last.

Looking at the details in the article, it seems that the only real rally identified is in oil stocks and precious metals and related stocks. That would be way too narrow a rally to get me excited.

Bond Expert: Friday Outlook

The best outcome now is a more orderly dismemberment of the super banks into parts that will survive and parts that will go under. I say more orderly because it will be that compared to letting everything go and trying to pick up the pieces.

John Jansen, I am not ready to endorse your new opinion:

"From the outset, I have always been a supporter of government intervention as a means to prevent this unique crisis from taking the system down. I have always believed that the consequences of inaction were greater than the cost of government involvement. I question that assumption now."

I still think the coming dismemberment will ultimately result in less damage than total collapse, even when you factor in the added government debt. Recovery might start earlier (in 2010), and from a higher level, than the total collapse scenario.