Ready for U.S. Banks To Be Nationalized?

by: Michael Panzner

I've recently highlighted some interesting content from websites that I visit on a regular basis. Today's short but unsettling snippet, "Links 1/1008 and a Scary Tidbit," comes from Yves Smith, publisher of another one of my daily must-reads, Naked Capitalism.

Forgive me, but we are going to be a bit lean on posts tonight. I had too much to drink with someone who is terribly plugged in (security clearances AND knows tons of people in academia and the officialdom personally, both here and overseas).

Unfortunately, I can't use many of the specifics he conveyed, but he is a very upbeat sort by temperament but also has been studying the banking/credit mess. He sees us going down the Japan path. Banks will not be technically bankrupt, but will have so many bad assets on their balance sheets, and will have taken hits to their equity bases, that 18 months from now they will be unable to make new loans. They will be quasi nationalized. BTW he said this in a completely evenhanded fashion, as if he was giving a weather report.

This, mind you, comes from someone who has written frequently for the American Enterprise Institute and tells me the Treasury and the Feds are working on this scenario now. This is far more dire than any forecast either yours truly, a constitutional skeptic, or even uberbears like Nouriel Roubini, have been putting forward.

Actually, those who've read my book or who've been paying attention to what I've been writing about here at Financial Armageddon over the past year or so might take issue with that last sentence.