Nationalize Insolvent Banks

[Tuff Gong]

Re: Nationalize Insolvent Banks

<a href="http://www.huffingtonpost.com/2009/02/15/graham-nationalizing-bank_n_167048.html" rel="nofollow" target="_blank"><span style="font-size: 14pt">SENIOR REPUBLICANS: NATIONALIZATION OF BANKS MUST BE AN OPTION</span>

<span style="font-size: 11pt">Chuck Schumer: &quot;I Would Not Be For Nationalizing&quot;</span></a>

<span style="text-decoration: underline">See also</span>:

<span style="font-style: italic">Arianna Huffington
Posted February 12, 2009 | 07:45 PM (EST</span>)
<span style="font-family: 'Arial Black'">
Why is Obama
Reluctant to Kill the Zombie Banks Threatening Our Economy?</span>

<span style="font-family: 'Courier New'">The battle lines over how to deal with the banking crisis have been drawn. On the one side are those who know what needs to be done. On the other are those who know what needs to be done -- but won't admit it. Because it is against their self-interest.

Unlike the conflict over the stimulus package, this is not an ideological fight. This is a battle between the status quo and the future, between the interests of the financial/lobbying establishment and the public interest....</span>

[Morpheous]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">
I am confident that once the toxic assets are determined and valued they will be snapped up.
</div></div>
This practice been going on for donkey years and is usual practice of banks. They sometimes sell on those books before they are deemed as toxic, collect their money and laughing. The businesses that sometimes buy these assets are dodgy companies that bend and even break the law in order to collect on those toxic assets they bought. They have some really sneaky dirty methods too of trying to implicate you as the debtor even when they have no proof!

[RichD]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">I thought you said a while back that the USA Government was moving too fast with regards to the Bail out and they should deliberate more carefully?
</div></div> that was almost 6 months ago...i think it has been demonstrated that the &quot;bailout&quot; they rushed in last year was ineffective and not properly conceived.

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">I thought you said a while back that the USA Government was moving too fast with regards to the Bail out and they should deliberate more carefully?
</div></div> that was almost 6 months ago...i think it has been demonstrated that the &quot;bailout&quot; they rushed in last year was ineffective and not properly conceived. </div></div>The Government of George Bush was ineffective and improperly conceived anything that happen thereafter was bound to be a tragic train wreck.

The ReThugs are carefully pushing this line while backing out of the stimulus package and letting GM and Chrysler twist on the vine. I smeeeel a rat. The only way Barack can Nationalize Banks in the USA and live to tell the tale is if the ReFuglican Base represented by Rash LimpBalls and Sistah Scarah PFailin get out in front and sell this to Joe The Plummer, otherwise Barack better stay well clear of this. Better to let them fail and offer a gentle ride down.

Andrew Sullivan Predicts Obama Will Nationalize Several Major Banks (VIDEO)
<span style="font-weight: bold">Huffington Post</span>
<span style="font-style: italic">Nicholas Graham
February 15, 2009 12:05 PM </span>

<span style="font-family: 'Courier New'">Andrew Sullivan, appearing on the Chris Matthews Show, predicted that that President Obama would end up nationalizing several major banks, and that the stress tests for these financial institutions that Treasury Secretary Geithner has proposed are the first step in explaining to the American public, for which nationalization is a charged word, why this has to happen.</span>

[SmoothOperator]

Re: Nationalize Insolvent Banks

Professor Roubini whose blog I enjoy reading pretty much says the same thing.

---------

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021201602.html

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: SmoothOperator</div><div class="ubbcode-body">Professor Roubini whose blog I enjoy reading pretty much says the same thing.

---------

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021201602.html

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late. </div></div>
That is what kicked off this post it is on the first page...But just look at who is pushing this argument on an Administration with a Democratic Party at the Majority. I think we have to look at this very closely. Where were their voices two years ago when the problem was evident?

[Tuff Gong]

Re: Nationalize Insolvent Banks

<a href="http://www.huffingtonpost.com/2009/02/17/lindsey-graham-defends-ba_n_167730.html" rel="nofollow" target="_blank"><span style="font-family: 'Arial Black'">Sen. Graham defends view on nationalizing banks
Graham: Ignoring possibility is irresponsible.</span></a>

<span style="font-style: italic">By Jim Morrill
[email protected]
Posted: Tuesday, Feb. 17, 2009</span>

<span style="font-family: 'Courier New'">Despite criticism from fellow Republicans, U.S. Sen. Lindsey Graham of South Carolina Monday defended his statement that the U.S. should consider nationalizing some banks.

Critics, including the chairman of Charlotte-based Bank of America and many politicians, have slammed the idea. That doesn't bother the outspoken Graham.

“Politicians are worried about words,” he said Monday. “I'm worried about outcomes.”

Graham said the government has already poured billions into banks with little to show for the economy. Bank of America, which has received $45 billion in bailout money, is currently worth $27 billion in market capitalization.

“The truth is we've put more money into the Bank of America than it's worth,” Graham said. “That's not nationalization. That's just stupid.”

Graham broached the idea Sunday on ABC's “This Week.”

“This idea of nationalizing banks is not comfortable,” he said then, “but I think we have gotten so many toxic assets … that we're going to have to do something that no one ever envisioned a year ago (and) no one likes.”

His comments surprised many Republicans.

“That's going above and beyond being a maverick,” said Glenn McCall, York County GOP chairman and a Bank of America executive. “That's saying that socialism in our country would work better than letting folks use their God-given talent to create and foster economic growth.”

Rep. Sue Myrick of Charlotte called nationalization “absolutely a no-no.”

“I can't even believe that Lindsey would say that,” she said. “I mean the government running the banks? Talk about a disaster.”

Bank of America Chairman Ken Lewis last week called the notion of nationalization “absurd.”

“I've never had anybody even hint at it,” he told CNBC.

But Graham said he was talking about majority ownership of some banks, not complete nationalization of them all. The government already has a stake in some.

Banks have been the main recipients of the more than $350 billion doled out so far of the $700 billion in so-called TARP money Congress approved last year, and billions more in other federal help. Critics say there's been little to show for it.

“It would be smarter from a taxpayer point of view to take them over and make them (successful) than it would be just to sit back and write checks or let them fail,” Graham said. “We need to cut our losses.”

Graham would consider temporary federal control of some banks. He discussed his proposal Monday during a roundtable with S.C. business leaders and economists at the University of South Carolina. Some welcomed his proposals.

“It's an idea that needs to be explored seriously and I'm glad he's taken the leadership,” said USC economist Douglas Woodward.

Graham said nationalization – or at least a form of it – is just an option.

“It's not responsible to take options off the table that might work,” he said. “I never suggested that the government take over every bank in America. I did say it might be better in some cases to take over a bank and restructure it.”

Jim Morrill: 704-358-5059</span>

[RichD]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"> “I never suggested that the government take over every bank in America. I did say it might be better in some cases to take over a bank and restructure it.”
</div></div>

i agree

[evanovitch]

Geithner’s hair of the dog plan for banks

February 18th, 2009
Geithner’s hair of the dog plan for banks
–<span style="font-weight: bold"> James Saft is a Reuters columnist. The opinions expressed are his own</span>. –

U<span style="font-style: italic">.S. plans for a public-private fund to buy up toxic assets are likely to amount to a fig leaf with which to hide subsidies to failing banks.</span>

<span style="font-weight: bold">It is also, inevitably, an entirely new subsidy to outside investors, who by definition will only participate if they get better terms than now available in what we formerly thought of as the free market.</span>

Treasury Secretary Tim Geithner last week announced the plan, which will provide between $500 billion and $1 trillion of financing to private sector funds which will use the money to lever up their own capital and make offers for complex and doubtful securities now clogging balance sheets. Further details are to follow.

<span style="font-style: italic">But it’s likely the plan won’t work, if by work we mean come up with a believable price for these assets.</span>

<span style="font-weight: bold">Banks won’t sell at market prices because to do so would make many fall over bankrupt. The U.S. can surely manipulate prices by providing cheap and plentiful leverage - sound familiar? - but that will be seen for what it is; a subsidy for the funds and the banks rather than a firm base to allow confidence to return.</span>

As it is, there’s a standoff in markets as to how to price these assets. For the sake of illustration, let’s pretend that banks have a security marked on their books at 90 cents on the dollar, while similar securities change hands at 60 or 65 cents when bought and sold in arms length transactions.

The first thing to recognize is why the market and bank prices are so far apart for these assets, many of which are tied to real estate or consumer loans. It partly reflects uncertainty about how the underlying loans will perform given the poor economic outlook. But it also reflects the potential that assets will get cheaper still, that banks will become forced sellers later and so why commit your capital now as prices may well fall when banks disgorge.

It finally and powerfully reflects the fact that there is very, very little secure term funding at a reasonable price available with which to buy this stuff. That means you have to be a cash buyer with a long time horizon, meaning the return has to be pretty juicy.

The banks have a partly legitimate beef with what they see as a market failure and partly are applying self-serving valuations in order to avoid going bust. The assets may throw off more income than implied by market prices, in other words those returns to cash buyers may be a bit rich, but on the other hand these high carrying prices are very convenient for the banks which would fail if market prices were applied.

BETTER THAN PAULSON BUT STILL FLAWED

The earlier Paulson held-to-maturity plan was aimed at buying up these loans at higher than market prices, the justification being that there was a market failure and the government would actually make a “profit” on the deal.

That plan failed while the new one hopes to use private investors to set prices, thus justifying the numbers. It will avoid some issues, lessening the chances that banks just fork over the worst loans or that the auction is corrupt, but it won’t achieve a market price.

Imagine for a moment that you are a hedge fund manager and in your subjective view a security now held by a bank will generate a return of five percent over its lifetime at the price at which the bank is willing to sell. No deal.

But if the Treasury will lend you eight times your capital for five years at 2 percent, well then that works pretty nicely, at least from the hedge fund’s point of view.

Competition between funds for access to the leverage can improve the outcome for the taxpayer, but banks have to be willing to sell and won’t do it if it drives them under. The U.S. can and I fear will simply increase the amount of leverage it will give relative to capital until the returns to the funds are good enough to justify them buying the asset for a price that keeps the banks magically solvent.

Sound familiar? It should because that kind of leveraged speculation is everyone was doing until the summer of 2007. Only then they were doing it with money borrowed from banks, now they are doing it with taxpayer money. Actually, in retrospect it always was taxpayer money.

So, it’s a bit better than the Paulson plan, and maybe we want to spread subsidies across funds and banks to help soothe the problem. But will it work to restore faith in banks? I am not sure it is enough money to do that without getting a multiplying effect from the rest of us believing the prices. If the result appears to be fixed, that won’t happen.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, click here. –

<span style="font-weight: bold">COMMENTS</span>
February 18th, 2009 8:00 am GMT - Posted by Don

Most of us accepted the financial equations where the asset value increased as interest rates declined. The lowest rates were normally found on short-term debt where holding on to the security for a couple months is not a big deal. What people describe as toxic debt resulting in insolvency reflects an inability of banks to sell securities at extremely low rates. I question the underlying valuation model. Because to me it seems debt should be nearly impossible to sell at low rates. Certainly as a security that can be traded, such debt at least on the mid- and long- range has no value in comparison to various competing financial products. So we have debt owners under the impression that their portfolios are worth a lot while prospective debt buyers have just the opposite opinion. We also have a python in the markets preventing rates from increasing and preventing spending. Because banks carrying a lot of debt - as banks have been known to do - are having great difficulty selling the debts to offer investment capital. The government will offer financing to stimulation. They will do this by borrowing money. But here we have a brick wall. If they simply print money, all the portfolios get permanently impaired, leading to widespread fear and panic. Yay.

February 18th, 2009 9:24 am GMT - Posted by Pure Magic

<span style="font-weight: bold">Does this portend DEFLATION? If so, buying gold would be a bad protection move.</span>

February 18th, 2009 10:31 am GMT - Posted by Marco

Well, this person does not see absolutely anything positive. I appeal to him to be a bit more balanced.

February 18th, 2009 11:44 am GMT - Posted by tourist

What incredible fiscal insanity. We have a consumer driven, demand economy so give each taxpayer a $10,000 tax refund check and let them buy, pay down debt, or save it. Regardless of what the consumer does, it will provide an immediate boost to the economy. Its cheaper than a trillion dollar subsidy to prop up failure. Further, so called toxic assets are just assets which were overvalued for the debt placed against them. Previous support has not worked so let them fail. Housing must be purchased with true income declaration from tax returns, and there is full recourse for the lender we are wasting trillions of dollars. Until this change is made we are on a path of incredible fiscal insanity, and the end of free enterprise as we know it.
Buy the Feb 16 edition of Newsweek and see why Canada has ZERO problems like this.

February 18th, 2009 11:47 am GMT - Posted by Robynne

<span style="font-weight: bold">The Mother-of-all-Investment Banks: The U.S. Treasury. This is insane, but what could you expect of the likes of Paulson, Geithner, Summers, Rubin? Exactly.</span>

February 18th, 2009 12:30 pm GMT - Posted by Jonathan Cole

Talk about moral hazard. In order to prop up this bankrupted system run into the ground by an elitist corporatist (the opposite of socialist) Bush administration, we are now actually subsidizing an economic downward spiral in order to make the climate for corporate/political piracy endure until every last sucker is played out. But then again we have been in the twilight zone for many years now.

I don’t think anyone is really surprised. But when people are starving (as is beginning now) the endgame may come quickly into focus - social unrest, authoritarianism, civil collapse and a military state. All because we stubbornly refuse to hold the elite corporatists/politicians accountable to the laws of malfeasance, misfeasance and nonfeasance. Too big to fail, indeed!

February 18th, 2009 1:45 pm GMT - Posted by Big Al

I fully agree with Mr Saft’s analysis. It’s time to nationalize those institutions which are insolvent, wipe out the shareholders and at the least the majority of the bondholders, liquidate the toxic assets at whatever the market will pay in cash (however little) place the institutions on a sound footing (fully transparent) and offer their shares to the public.

[RichD]

Re: Geithner’s hair of the dog plan for banks

half measures will not work...they need to bite the bullet

[RichD]

Re: Geithner’s hair of the dog plan for banks

<span style="font-size: 14pt">Ghost Story: Put Banks Out of Their Misery</span>

By Nicholas von Hoffman


Bakemonos are floating through the halls, offices and minds of the economists, business writers and policy wonks of Wall Street and Washington. Bakemono is a Japanese word for ghost.

These bakemonos are repeating reminders of Nippon's 1990s, the economically disastrous decade during which Japan suffered through a painful period of deflation and stagnation. In the 1970s and 1980s, it looked as though Japan had become the world's leader in business and applied technology. Built into that success was a bubble which, as bubbles are wont to do, popped, and then malaise set in.

Try as the nation would, it could not return to prosperity. According to most everybody who has studied it, the reason Japan was unable to cure itself was its policy of propping up the country's major banks, which were largely insolvent.

For ten years these institutions were kept on life support, alive but unable to perform the indispensable function of making loans to businesses and consumers. <span style="font-weight: bold">Finally, Japan euthanized the banks by nationalization and bankruptcy. Only then did prosperity return.</span>

Japan's story is a twice-told tale. American economists and financial businesspeople know the story of Japan's travails, of the reluctance of government to do what had to be done and the costs that followed delay and inaction.

And what of our situation now? The New York Times reports that, &quot;students of the Japanese debacle say they see a similar train wreck heading for the United States.&quot; The paper goes on to say:

<span style="font-weight: bold">The Japanese first tried many of the same remedies that the Bush administration tried and the Obama administration is trying--ultra-low interest rates, fiscal stimulus and ineffective cash infusions, among other things. The Japanese even tried to tap private capital to buy some of the bad assets from banks, as Mr Geithner proposed.</span>

One reason Japan's leaders were so ineffectual for so long was their fear of stoking public outrage. With each act of the bailout, anger grew, making politicians more reluctant to force real reform, which only delayed the day of reckoning and increased the ultimate price tag.

As they did in Tokyo, they are doing in Washington: refusing to accept that the nation's largest financial institutions--with a couple of exceptions--are insolvent, bankrupt, worthless, with debts that far outweigh their capacity to service them.

As was true in Japan, the trouble began with real estate loans, which, in one form or another, turned into those famous toxic assets. Geithner, like his predecessor Henry Paulson, is wrestling with how to get those assets out of the banks, which boils down to the question of how much should the government pay for them.

A free-market solution will not work if the object is to save the banks. Right now the highest price the assets would fetch is about twenty-two cents on the dollar, even though in a few years they are likely to be worth much, much more. Buying them at that price would still leave the banks under water and struggling for air.

If the free market is to be suspended, then the government will have to set a price for the toxic assets, but administered pricing has an unrelievedly dismal history, which may be the reason why Paulson could not figure out a method to set one and why Geithner apparently is doing no better. If Geithner does come up with a price, which is politically palatable but economically ridiculous, the banks will still be dysfunctional zombies.

Why then do the decision makers not suck in their guts, bite the bullet, take the plunge and put the banks into receivership or some other form of bankruptcy? That's what the bakemonos are telling them to do.

Doubtless they are scared out of their wits at what that might do to the stock market. The market will take a big hit, but in due course it will bobble up again. That's what markets do.

They are scared of a financial landscape in which institutions such as Citigroup and Bank of America have been temporarily nationalized. Besides their own friends, the stockholders in these institutions include pension, hedge and mutual funds. These, as well as thousands of individual investors will be wiped out, erased, liquidated. The same may hold true for the bondholders. A lot of people, most of whom are undeserving of such treatment, are going to be badly hurt.

They will be less badly hurt if the deed is done now than they will after ten painful, profitless and demoralizing years have passed, and so will the country as a whole. The damage done by stalling until 2020 will be as great to this society as it was to daily life in Japan.

Mercy killing the insolvent financial institutions is scary. The lives and happiness of millions are at stake. All the more reason to listen to the bakemonos, because this ghost story is true.

[Tuff Gong]

Re: Geithner’s hair of the dog plan for banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"> “I never suggested that the government take over every bank in America. I did say it might be better in some cases to take over a bank and restructure it.”
</div></div>

i agree </div></div>These folks have no creditability. Lindsay Graham was one of those who claim that Barack was sitting on his hinny and was not doing enough work on fixing the economy, then when it came time to vote on the Bill did not lift a finger to vote on it.
No he is on talk shows talking up Socialism.

[Tuff Gong]

Re: Geithner’s hair of the dog plan for banks


Not truly related but let me stick this here. I smell lawsuits:

<a href="http://www.huffingtonpost.com/2009/02/19/ubs-american-investors-id_n_168135.html" rel="nofollow" target="_blank"><span style="font-family: 'Arial Black'">UBS: American Investors' Identities To Be Revealed</span>
<span style="font-style: italic">Huffington Post
Julie Satow
February 19, 2009 07:09 AM </span></a>

The curtain is being peeled back on the infamous secrecy of Swiss banks.

The largest bank in Switzerland, UBS, agreed Wednesday to reveal the names of wealthy Americans whom the authorities suspect of using offshore accounts to evade taxes.

The change in policy is the result of UBS'

[RichD]

Re: Geithner’s hair of the dog plan for banks

some must be scrambling to try cover their names

[evanovitch]

Re: Geithner’s hair of the dog plan for banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">some must be scrambling to try cover their names </div></div>

dem was discussing it pon Coast to Coast lass nite....is ongle 20,000 American citizens whose account dem a try get di names fah....wonda how much money dem a really chat bout,given dat is ongle 400 reallllllllllllllly rich Americans ascawding to Forbes....