When conservative Republicans start talking about bank nationalization you know it’s an upside down world:
"Last Sunday on ABC, George Stephanopoulos asked Lindsey Graham, the conservative Republican senator, what he thought about all this talk of bank nationalization. Mr. Graham said that he wouldn’t take the idea off the table. And on Wednesday, Alan Greenspan told the Financial Times that “it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”
When conservative Republicans start talking about bank nationalization you know it’s an upside down world:
"Last Sunday on ABC, George Stephanopoulos asked Lindsey Graham, the conservative Republican senator, what he thought about all this talk of bank nationalization. Mr. Graham said that he wouldn’t take the idea off the table. And on Wednesday, Alan Greenspan told the Financial Times that “it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”
Good God, Lindsey Graham, a conservative republican?!
**
You’re using the YaHey political continuum here, aren’t you?!
"Graham votes as a conservative roughly 90 percent of the time, **roughly the same as Thurmond’s **(bold mine) record, but is considered to be more independent-minded than his Senate colleague, Jim DeMint.
it’s clear that it’s temporary. No one’s in favor of a permanent government takeover of the financial system.
HaaaaaaHAAAAAAHaaaaa!!!. Temporary? Yeah sure…
The two things that Greenspan got totally wrong were his beliefs that, one, markets self-regulate, and two, that there’s no market failure.
Markets DO self regulate, but in order to “Self regulate” you have to allow them to fail. You can’t have self regulating markets without failure.
There’s nothing wrong with greed, per se. It’s not that people are more greedy now than they were 20 years ago. But greed has to be tempered, first, by fear of losses. So if you bail people out, there’s less fear. And second, by prudential regulation and supervision to avoid certain excesses.
Exactly and we have in essence taken that fear completely away from top to bottom. Not only that but the influence and involvement of government from influencing the lowering of lending standards, subduing interest rates and implied “Backing” of crappy loans by the government has created a mentality that “we can’t allow corrections or failure and if something does happen we got your back”
"Sweden told its banks to write down their losses promptly before coming to the
state for recapitalization. Facing its own problem later in the decade, Japan
made the mistake of dragging this process out, delaying a solution for years.
Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a
conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s
largest bank. Mr. Wallenberg, the scion of the country?s most famous family and
steward of large chunks of its economy, heard that there would be no sacred cows.
The Wallenbergs turned around and arranged a recapitalization on their own,
obviating the need for a bailout. SEB turned a profit the following year, 1993.
For every krona we put into the bank, we wanted the same influence, Mr.
Lundgren said. That ensured that we did not have to go into certain banks at
all.
By the end of the crisis, the Swedish government had seized a vast portion of
the banking sector, and the agency had mostly fulfilled its hard-nosed mandate
to drain share capital before injecting cash. When markets stabilized, the
Swedish state then reaped the benefits by taking the banks public again."
BTW, this guy who was one of the few who predicted our current crisis, supports bank nationalization similar to what Sweden did… but he also expects we are headed for a major depression regardless: http://www.financialarmageddon.com/
From the article it appears that acting now rather then waiting is the best way to go. I think the idea is being floated around to see what kind of support it has/hasn’t. When you get the GOP to look at this proposal as a fiscal move, as opposed to tossing more money at a problem, it’s a short jump to make that it’s going to happen.
From the article it appears that acting now rather then waiting is the best way to go.
Beats the hell out of tossing cash at them and watching it disappear. There would be broad public support I think… people want to see some of the people responsible for this mess suffering a bit. Based on what I’ve heard about the Swedish solution, the government paid very low prices, and the lead managers of those institutions were fired.
While Graham may not be a truly conservative Republican, I think most people might classify Alan Greenspan as one, depending on what the term “conservative” means.
It seems to me that Alan Greenspan once again has wet his finger and raised it into the wind in order to determine how he wishes to be perceived by the public.
It is highly unlikely that you will get a true nationalization of the U.S. banking system. Being the political party that is responsible for wiping out shareholders is just too costly in this political landscape. The government would be better off starting a de novo bank and competing against the industry. The Swedish parallel is not a very good one, their system is not nearly as large or complex. Further, it operates well outside the financial center of global commerce.
At the end of the day, this is all about trust. Getting banks to lend to one another and getting depositors comfortable that their assets will be secure and accessible when needed. The trust issue is directly correlated to the balance sheets of these banks who have been slow to recognize losses and counterparty risk. Money should only be injected on the basis that is addresses the trust issue – either be removing bad assets or to generate cash flow by lending.
“Being the political party that is responsible for wiping out shareholders is just too costly in this political landscape.”
One of the problems here is that the expectation of nationalization seems to be wiping out shareholders anyway. In that sense talk of bank nationalization can become a self-fulfilling prophecy.
That’s true, but what you have to realize is there are banks that should be out of business and those that will thrive once the wave of nausea passes. Banks like Wells Fargo and U.S. Bank, who have no need for the bailout funds are well positioned long term. The nationalization rumors are merely pushing the bad banks to the breaking point. That said, you are seeing what the media can to do the financial markets. Who says we have strong form efficiency? Not.
Since total nationalization would be practically impossible, the FDIC will remain in place for small and regional financial institutions (a). You would still have ensured deposit limits at “government owned bank” (b). The difference is the rate you would receive for placing your money in (a) would be higher than (b) due to the risk.
It seems to me that Alan Greenspan once again has wet his finger and raised it into the wind in order to determine how he wishes to be perceived by the public.
Being the political party that is responsible for wiping out shareholders is just too costly in this political landscape.
I disagree. The gov will pay what the bank shares are really worth… which might be very little. But why shouldn’t the “owners” of these banks suffer the consequences of bad management? All upside with no downside risk? Bah! The pain is going to occur somewhere… might as well let it rest where it belongs. I think the vast majority of the US public can see the logic in this and will consider it “fair”, and a positive move in the right direction.
Like in Sweden, once things are settled you resell the banks a year or two later at the going rate and move on…
**…and the lead managers of those institutions were fired. **
Nationalization or not, I don’t trust that the same people who got us into this mess are the same ones that should be tasked with fixing the problems (the old “fox guarding the hen house” cliche comes to mind).
At the same time, I don’t trust that the government can get us out of this either.
Well then we disagree. It is not bad management per se that has gotten them in to this situation, though it is part of it, but rather a lax regulatory system coupled with a government policy which supported the system running amok. The government is as culpable as management. As for your concept of the public seeing wiping out equity as fair, that is not the American way. Look at all those idiots who had their entire 401(k) in Enron stock. The American public has no idea that stock values can go down.
You are looking at what you think would solve the problem, but you are doing so in a theoretical sense. Now inject realities of our political system the complexity of our banking environment. The Swedish plan is impossible to replicate on that scale and would likely not work without drastic unintended consequences.
It is not bad management per se that has gotten them in to this situation, though it is part of it, but rather a lax regulatory system coupled with a government policy which supported the system running amok. The government is as culpable as management.
I agree… but the administration that was in position to do something about it has been largely supplanted. Of course, I’d love to see those responsible in the government publically humiliated as well.
As for your concept of the public seeing wiping out equity as fair, that is not the American way.
Like I said, equity will be reduced to what it is truly worth.
Look at all those idiots who had their entire 401(k) in Enron stock. The American public has no idea that stock values can go down.
Of course they do… but they can blinded by greed and stupidity. BTW, did we bail out the Enron stockholder?
You are looking at what you think would solve the problem, but you are doing so in a theoretical sense. Now inject realities of our political system the complexity of our banking environment. The Swedish plan is impossible to replicate on that scale and would likely not work without drastic unintended consequences.
Specifics? I don’t see that size matters much here… and the “unintended consequences” of bailing everyone out at tax payer expense looks far more serious to me.