http://thinkprogress.org/2009/03/07/nationalization-support/ New Poll Reveals 56 Percent Of Americans Favor Bank Nationalization A new Newsweek poll finds that 72 percent of Americans have a favorable opinion of President Obama, 58 percent approve of the job he is doing, and 65 percent are very or somewhat confident that he will be successful in turning the economy around. The poll also contains the interesting and “somewhat surprising” finding that a majority of the American public supports nationalizing the banks: 11. Temporary nationalization is another way for the federal government to deal with large banks in danger of failing. This is where the government takes over a failing bank, cleans its balance sheets, and then quickly sells it off. In general, which do YOU think is the better way to deal with failing banks… 29 Government financial aid WITHOUT any government control of the bank, OR 56 Nationalization, where the government takes temporary control? 11 Neither/Other (VOL.) 4 (DO NOT READ) Don’t know It appears that the Obama administration has thus far resisted nationalizing the banks because it views that option as not politically viable. Obama has argued “America’s different” than other countries which have embraced nationalization. But, in addition to the American public, the noteworthy list of those who are advocating nationalization is bipartisan and growing. It includes Paul Krugman, Alan Greenspan, Nouriel Roubini, Lindsey Graham, James Baker, and now Thomas Hoenig. Hoenig is the Kansas City Fed President, and in remarks yesterday, he criticized the Treasury Department for moving forward with nationalization in a “piecemeal” rather than a comprehensive manner. As Pat Garofalo explains on The Wonk Room, Treasury Secretary Tim Geithner’s “public-private investment” rescue plan appears to be operating on a faulty theory: He seems to believe that the problem with the assets is not that they are actually relatively worthless, but that they have an “artificially depressed value” that will return as soon as a market for them is created. […] Geithner has posited that the toxic assets have a “basic inherent economic value” that is absent because of “the absence of financing and credit.” Unfortunately, today’s market valuations may reflect actual prices, which would throw a serious wrench into everything about the administration’s plan. Matt Yglesias warns that the Geithner plan is more likely to fail “by being too cautious rather than overreaching.”
Yes, temporary. Wipe out the shareholders, replace management, clean up the balance sheet (remove toxic assets), then sell it back to the marketplace.
I seriously doubt that the group we have running the show on both sides of the aisle could take control of something "temporarily."
This would be the final straw, in my opinion, of giving Obama WAAAAAAY too much influence over the nation's direction. If you control the government coffers AND the private coffers, then you simply have too much centralized power. History has proven time and again that this approach is a failure. Suspend mark-to-market accounting is step 1. Step 2 is restore confidence in the market. Thus far, the market has puked all over Obama's push towards socialism. Giving him MORE influence and MORE ability to pursue this path would be disastrous. Unless you want Dow 4000, I don't recommend nationalization.
But that's exactly what "nationalization" in this context requires. It's a poor semantic choice; "receivership" is a better one. Chavez & Castro nationalize industries/resources: the government takes over a private enterprise, and does not give it back. "Nationalization" in our context happens all the time, as several smaller banks fail each week, and the FDIC is left with disposing of the carcasses. The investors in those banks are wiped out, but the assets are reprivatized as quickly as possible. We did something similar (on a smaller scale, sure) when all the savings and loans went bust. Essentially, some of the larger banks in the US are already bankrupt, but they and their shareholders are being kept alive by government (read: taxpayer) cash infusions. There's every reason to keep the banking system alive, but no reason to continue to reward investors (who profited in the good times) for betting on such risks. Clean them out, and resell the assets back to the private sector as quickly as possible. I was listening to the Shelby/McCaskill interview this morning, as described at TPM : Call it something else, but nationalize 'em.
Then the FDIC should resolve the banks just like it does with the smaller banks. They are scared because of the size of these banks, but with all the FED programs we have now, the systemic risk is much less.
If you let the big banks fail and/or nationalize them, what are you going to do with all of the fertilizer, etc that will sit on docks because the farmers cannot get credit to purchase it?
If we nationalize the banks, it isn't as if they are going to stop operating. If the farmer can get credit now, he will be able to get it after nationalization.
We should pretend it's worth more than what the market will actually pay for it? Aren't you a capitalist? Are the Mexican industrialists with which you regularly dine also Zapatistas? Maybe the market is down because, say, people who hold bank stocks realize what they hold is worthless, and others aren't willing to buy that which is worthless? (This is one of many situations in which a lowered stock price, if nationalization is the handwriting on the wall, is better for the economy writ large.) And isn't a down market a recognition by investors that the economy really is in bad shape, i.e., they can read the paper as easily as you and me? The market always knows? Why paint rosier pictures than reality, to artificially reinflate the balloon? If it's good enough for Krugman, Roubini, Greenspan, Lindsey Graham, why not us?
I frankly am not comfortable with nationalizing failing banks. In fact, this threat is why the bank stocks are down. It would be a completion of the failure of this night mare. What we need to do is is stimulate credit and liquidity. I think a value for these "depressed" bonds need to be determined based on expected default rates. The gov't should then buy up the securities from banks at that cost. This will do a few things. One, it will infuse the banks with cash. Two, it will help drive up the shareholder value of the bank stock since they will be getting more value for the bonds than what the market is evaluating them right now. Finally, it will re-assure wall-street that the gov't isn't planning on nationalizing banks. All of this will help the blood shed. I'd rather buy the depressed assets and work with people to find ways to pay off their mortgages by lowering their payment (50 year mortgages?) anyway. If the gov't can help people stave off defaulting on the loans, than the securities will be worth more as well. This could just be converting 30 year mortages to 50 or 60, or even 100 year fixed rate mortgages. Yes, it's a loss for the bond but not as much as they are plummetting, and if you can limit the loss and stave off defaults...that alone will help bring the credit markets back on line.
The lead story on ABC Nightly News is Shelby's quote about "closing" the big banks, but the piece doesn't refer to the debate over "nationalization." "Are your deposits at risk?" D'oh. Inefficiently, but yeah. Well said.
this is so silly. people already know the value of the assets, regardless if they are forced to mark them down or not
Why is it so silly? Do you think it is useful when we have a dysfunctional market which is hammering the prices of other quality assets? We're not dealing with an orderly market right now so we don't have a true picture of the overall economy. Mark to market takes away liquidity and I believe that's something that we need. Mark to market is just one of those things that people love when the times are good, and hate when times are bad.
we can't back and say, you know those securities we said were way overvalued bringing down our entire financial system. well they really aren't. the cat's out the bag, and it would be regardless of accounting
This is true for non-financial companies. But for financials, the valuation of the assets actually affects their need for raising capital. Take, for example, a bank that has $100,000 in those assets and has made $1,000,000 in loans against them. If they can leave the value at $100,000, they are perfectly fine and can continue operating as is. If they have to value them at $50,000 simply because no one will buy them, they suddenly have to raise another $50,000. But since all these bank stocks are worth crap, they can't raise equity. And since everyone is scared of what bank might fail next, they can't raise debt at reasonable prices. Thus, the problem compounds and just spirals out of control. In theory, M2M makes perfect sense because the $100,000 in assets *should* only be valued at $50,000 if that's what their likely return is. But the problem is that most people think these assets are being undervalued simply because of fear right now - and that the longer-term value is probably higher. The issue is that if we go into a depression, they are worth the $50,000. But by valuing them at $50,000, we increase the likelihood of going into that depression. So the accounting might actually be causing the economic situation to get worse which causes a spiraling effect. For example, if Lehman and WaMu don't collapse (and that was in part due to the M2M issue - they were OK in terms of day-to-day cash-flow), the situation today is probably not nearly as bad as it is. If you suspend the M2M but increase transparency into the books of the banks, the analysts can come up with their own valuations of these things, so they can still drive the stock prices to the appropriate values, but the stock prices won't drive down the banks' underlying healthiness.
Totally wrong, as usual. First of all, you don't know a thing about accounting or finance, so it's the height of arrogance for you to think you can argue with me on the topic. You can't mark something to a market that doesn't exist. You get ridiculous outcomes. Right now there is no market. Marking something to nothing is the result. Had we had mark-to-market in the late 90's, all of the banks would have already been wiped off the face of the earth. Mark-to-market assumes you sell today. Nobody is selling today unless under extremely distressed circumstances. Insane valuations is the result of m2m. Read Steve Forbes' piece in the WSJ from Friday. You might learn something.
To expand here - this situation also exacerbates the lending problem. Take the example of the bank at $100,000 in assets and $1,000,000 in loans. If they are afraid they are going to have to re-value their assets to $50,000, then as loans get paid off, they aren't going to make new loans. Instead, they are going to try to reduce their outstanding loan volume. Thus, you have a situation with people unable to get credit. However, if they know they can leave those assets on the books at $100,000, they will continue to loan out money as money comes in order to make a profit. So suspending M2M also helps ease the credit crunch to some extent.
its cute when you dust off your finance 101 book and try to lecture everyone. the height of arrogance, omg the uppity negro is talking finance again LOL
