Why isn't Obama nationalizing the banks?

[petertribo]

Re: Why isn't Obama nationalizing the banks?

My opinion:

Everything now is directed to bailing as many of the Influential and Elite as possible who are in Hedge Funds and other Malinvestments. The TARP and all the acronymic dumps are designed to get these Important People and Institutions (College endowments for example) free and clear with the cash.

When the above has been accomplished as much as possible, then we will see the actual supposed solutions marketed and put in place. These solutions will be designed to line the pockets of the Influential and Elite who escaped in the above paragraph.

Rinse and repeat until one or more factors (significant political unrest for example) intervenes to break the power of the Influential and Elite.

Conclusion: "solutions" are simply smoke and mirrors to disguise more and accelerated Looting of the Treasury.

[D-Mack]

Re: Why isn't Obama nationalizing the banks?

UPDATE:White House: Privately Held Bank Systems 'Correct Way To Go'
February 20, 2009: 02:48 PM ET



(Updates with additional comments; adds background)

By Henry J. Pulizzi

Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Amid fears that Citigroup Inc. (C) and Bank of America Corp. (BAC) are on the verge of being nationalized, the White House gave assurances that it prefers banks to remain out of the government's hands.

"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House spokesman Robert Gibbs said Friday. "That's been our belief for quite some time, and we continue to have that."

...

http://money.cnn.com/news/newsfeeds/...5_FORTUNE5.htm

Whatever that means

[whitetower]

Re: Why isn't Obama nationalizing the banks?

It seems to me that nationalization is a remedy that attempts to "save" insolvent banks, i.e. recapitalize and otherwise get them functioning again.

This is a nagging point to me -- why would the government or anyone else seek to do this?

(I posted a thread asking about bank nationalization and bankruptcy yesterday.)

There are something like 8000 banks in the U.S. and certainly not all are insolvent. Just because BoA or Citi or Wells goes under doesn't mean all banks will fail. Indeed, as far as I can understand, many regional and local banks are doing just fine, largely because they didn't involve themselves in the MBS schemes.

And, the depositors assets are guaranteed up to $250K by the FDIC, so nationalization has nothing to do with rescuing the depositors.

Further, nationalization, by definition, certainly isn't helping the shareholders -- their position will be wiped out entirely.

So that leaves bondholders of the bank. Wouldn't nationalization rescue them, at great risk to taxpayers?

In contrast, allowing banks to file bankruptcy would wipe out bondholders, not depositors or shareholders. The taxpayers really wouldn't be on the hook for anything beyond the deposits. In bankruptcy, debts are partially or entirely wiped out -- meaning, the position of the bondholders.

Nationalization ultimately means the taxpayer will be on the hook to cover the debt (bonds) of the bank.

It seems to me, therefore, the cheerleaders for nationalization are doing so to rescue bondholders, at the expense of nearly everyone else.

So what's wrong, actually, with allowing bondholders to be wiped out?

[Sharky]

Re: Why isn't Obama nationalizing the banks?

I would say that the banks are being nationalized.

What else would you call it when Citibank's existing shareholder's stake is reduced by 74% as a result of government intervention and ownership of preferred shares?

http://www.bloomberg.com/apps/news?p...d=avIY2hYYVM.g

[c1ue]

Re: Why isn't Obama nationalizing the banks?

Sharky,

You're not reading the article carefully enough.

The previous common shareholders are losing some benefit, but the existing preferred shareholders are actually gaining in ownership despite not putting up any more capital.

Even for the previous common shareholders, the net is a gain.

As I noted in a post in the Financial Markets section - normally when recapitalization occurs, existing stakeholders lose 90% or more.

[Sharky]

Re: Why isn't Obama nationalizing the banks?

The previous common shareholders are losing some benefit, but the existing preferred shareholders are actually gaining in ownership despite not putting up any more capital.

Even for the previous common shareholders, the net is a gain.

Sure. Anytime an investor saves a company from failure or bankruptcy, all existing shareholders benefit. The point is (from the article):

Assuming the maximum amount of preferred shares eligible for conversion, existing stockholders would be left with a 26 percent stake.

As I noted in a post in the Financial Markets section - normally when recapitalization occurs, existing stakeholders lose 90% or more.

They're on their way to 90%+, it's just happening a little at a time. Again, as the article says:

“This is another step toward creeping nationalization,” Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said in an interview on Bloomberg Radio. “This country is going through no less than an economic revolution,” said Levitt

[bpr]

Re: Why isn't Obama nationalizing the banks?

The point is (from the article):

As part of today’s deal with the government, Citigroup also agreed to reconstitute its board so that a majority of the directors are new and independent. (can't wait to see who these new independent faces are).

The change was intended to be a statement to Wall Street and the public that there are some consequences when the government needs to take extraordinary steps to stabilize a company, an administration official said on condition of anonymity. (in other words, it's wholly symbolic).

Even with that agreement, the government isn’t dictating who will be named to the board, nor will it set the bank’s business strategy, Chief Financial Officer Gary Crittenden said in a Bloomberg Television interview. (in other words, it's wholly symbolic).

Not nationalization. It's what Hudson describes here.

Part of the reason for the snail's pace is that it allows for the orderly exit of the oligarchs before the final walls collapse.

[markoboston]

Re: Why isn't Obama nationalizing the banks?

What's going on?

Lindsey Graham, a republican senator, seems OK with it. Greenspan, republican fed chair, is OK with it. Krugman, Nouriel Roubini, and other notable economists are OK with it.

What's Obama got to lose?

He should call in Lindsey Graham, and say hey, you lead and I'll follow on this. Let's nationalize the banks. Right NOW.

I can't think for a minute why this will not happen. So, my bet is, it will and very soon.

Obama is not nationalizing the banks because it is better for shareholders and bank executives for the government to keep subsidizing the banks and adding the cost of the subsidy to the massive debt owed by taxpayers. If you understand that Obama, like Bush, is governing in the interest of the superrich rather than the people who elected him, then it all makes sense.

[c1ue]

Re: Why isn't Obama nationalizing the banks?

They're on their way to 90%+, it's just happening a little at a time. Again, as the article says:

Sharky,

The previous 'common' shareholders are losing, but haven't lost what they should have. And the preferred shareholders also would have been downshifted, and instead they now have larger stakes than before.

So I still must disagree with your assertion - even if the reality is that what Citi now has is a capped government ownership plus a blank check for future infusions in the form of bad debt 'guarantees'.

[Uno]

Re: Why isn't Obama nationalizing the banks?

You people need to stop dreaming that you live in a democratic and captialist society and then the anwser becomes very simple.

Top 5 contributors:

McCain (Mr. Finance Reform)

Merrill Lynch $377,495
Citigroup Inc $325,551
Morgan Stanley $269,352
Goldman Sachs $256,045
JPMorgan Chase & Co $232,557

Clinton (Mrs Finance Reform):

Citigroup Inc $674,677
Goldman Sachs $599,320
DLA Piper $547,620
EMILY's List $526,770
Morgan Stanley $499,040

Chris Dodd:

Citigroup Inc $316,994
United Technologies $262,400
SAC Capital Partners $246,200
American International Group $223,478
Royal Bank of Scotland $218,500

Barney Frank:

Brown Brothers Harriman & Co $36,200
Manulife Financial $15,000
Royal Bank of Scotland $13,800
Deloitte Touche Tohmatsu $13,000
Bank of America $12,750

Richard Shelby:

Citigroup Inc $91,200
PricewaterhouseCoopers $68,250
JPMorgan Chase & Co $66,500
Southern Co $62,250
Collazo Enterprises $61,000

Obama:

University of California $1,207,928
Goldman Sachs $1,007,323
Harvard University $827,210
Microsoft Corp $801,

The facts seem to say that Obama is the best of a bad lot.

[Uno]

Re: Why isn't Obama nationalizing the banks?

and check this out - compare Mr. Military keep us safe McCain and Ron Paul.

Ron Paul (top contributors):

US Army $78,955
US Navy $60,369
US Air Force $59,606
Google Inc $58,401
Microsoft Corp $50,073

so I guess the guys who die for America and probably understand the value of the constitution better then the rest of us - are supporting a wacko, according to Fox and CNBC news.

In Summary: Ron Paul is Best. Obama was the best realistic choice. The rest are complete criminals.

[cjppjc]

Re: Why isn't Obama nationalizing the banks?

.

In Summary: Ron Paul is Best. .....

Yes............

[GRG55]

Some speculation:

FDR didn't come in until near the bottom of the depression. It was firmly placed as the Hoover depression.

This depression has a ways to go before hitting bottom. There's little that can be done at this point to stop the asset deflation. The rate of house price deflation is so fast that it almost has to bottom toward the end of the year. Why not drag out any real solutions later, when you know you're near a bottom?

Any solution now is almost certainly going to look bad as the economy continues to decline. Wait until you're near the bottom then bring out the big guns, Nationalization of banks, heavy cram-downs of mortgage principle, declaring most CDS' null and void. Now as the decline bottoms out, or reverses, it becomes the Bush depression and the Obama recovery. It's all about the politics.

Yep, and let's remember that 2009 is not a mid-term election year, but 2010 is...so does that mean that the heavyweight stimulus gets held back until next year, while 2009 is used to press home the "Republican/Bush Depression" in the minds of the voters?

[FRED]

Re: Why isn't Obama nationalizing the banks?

Yep, and let's remember that 2009 is not a mid-term election year, but 2010 is...so does that mean that the heavyweight stimulus gets held back until next year, while 2009 is used to press home the "Republican/Bush Depression" in the minds of the voters?

Stimulus results take at least a year to show up:

This assumes that the stimulus not only increases domestic demand but that global demand for exports remains intact. If South Korea's 20.8% YoY decline in GDP in Jan. 2009 is any indication, that is probably not realistic in this case.

Note also the impact of fiscal stimulus on the exchange rate, or so we hope?

Source: IMF

[GRG55]

Re: Why isn't Obama nationalizing the banks?

The point is (from the article):



Not nationalization. It's what Hudson describes here.

Part of the reason for the snail's pace is that it allows for the orderly exit of the oligarchs before the final walls collapse.

CITI/TARP – The Worst Convert Ever


The arithmetic on Treasury’s conversion of the TARP Preferred Stock
investment into Citi’s common is troubling.

Last Friday Treasury agreed to convert $25 Billion of the TARP Pref for 36% of the common of Citi. The problem is that as of the close of business on Friday 36% of Citi is only worth $3 billion. This convert looks like a $22 Billion loss.

If your broker had slipped a few of these Preferreds into your account last fall and you joined the Feebs on Friday in the convert to Common your account would be down 90% in fewer than four months. Fleeced.

The Tape never lies. C closed at $1.50 on Friday. It is very hard to hide the value of 36% of Citi. It would appear that Mr. Geithner has a Mark To Market problem. He is facing the pricing dilemma of, “What I paid for it, what I think it may be worth over time, what the distressed market values it at today”.

Possibly now that Mr. Geithner is on this hot seat there will be some fast action from DC. A twenty-four month suspension of all Mark to Market requirements. By the time twenty months rolls around there will be so many losses that the Citi convert loss will be buried.

Mr. Geithner is getting crunched on the portfolio from the Bear Sterns deal that he engineered. The Citi Convert deal is also a stinker. The rest of the TARP Preferred portfolio is underwater.

Mr. Geithner is the only one still standing from the TARP I Treasury deal. If his plan is to pay for the losses of TARP I with the remaining funds in TARP II he is in for a rude awakening. He needs more chips to play this big game. The market knows that.