Impending Nationalization of US Banks

There's probably a reason "nobody wants to buy the assets"...and the Govt shouldn't buy them either for the exact same reason. If the banks can't sell, then write them off as a loss....

There are lots of banks that aren't failing

....and the deposits of us little guys are guaranteed up to $250K by the FDIC....

so why does the bank get to hold a gun to our heads to bail them out by buying useless assets nobody in the right mind would buy?

taking CITIGROUP as an example , they've managed to drop from $50 a share to $2.2o today

speculation is that Citi is a zombie bank, it which case that $2.20 a share is $2.20 more than it should be

it seems to me that they stay alive by "kiting cheques"

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it seems to me that they stay alive by "kiting cheques"

Zombie= dead but APPEARS to be alive. Even if Citi is allowed to remain open what are they going to do? They have no assets that are not spoken for, thus they have no money to lend and will not for the forseeable future.

Exactly correct. And we cannot in good conscience just throw them money to stay afloat, and I don't think it would work anyway. So. Why not take control instead of let the buildings crash down?

Editorial
The Government and the Banks
February 21, 2009

Bank stocks plunged last week on fears that the government will have to take over battered institutions like Citigroup and Bank of America. That would wipe out the banks’ shareholders " hence, investors’ rush for the exits " and put the government in control of a swath of the financial system.


Americans have a visceral horror of the word nationalization. So call it restructuring or majority ownership. Or call it the taxpayers’ due after pouring in hundreds of billions of dollars in capital and guarantees and standing ready to pour in hundreds of billions more. We increasingly believe it is the least bad solution to a truly desperate situation.

Bank losses are mounting, leaving some institutions undercapitalized and " by credible calculations " insolvent. That is a disaster for taxpayers. They need the banks to function, and it is their money on the line to support banks that are too big to fail, like Citi and BofA.

Rescue measures have so far prevented a system-wide meltdown, but they have not reversed the downward slide or revived bank lending. That will not happen until investors have a firm grasp of the losses that everyone knows are on banks’ books " but that the banks are loath to acknowledge.

Done right, a takeover would be a once-and-for-all fix. The government would examine the banks’ holdings to get a realistic assessment of the toxic assets that are crippling the banks " and how much capital each bank needs, not only to survive but to begin lending again.

Institutions that are healthy enough to raise the needed capital from private investors would remain in shareholders’ hands. Those that are too weak would be taken over by the government and recapitalized with taxpayer money. The government would be in charge of restructuring those banks’ finances and operations. Current management would be fired " an appropriate end for executives whose failures have brought their companies and the country to this dark and dangerous point. Because taxpayers would be the owners, they would benefit from the gains to be had when the banks recover.

Critics will charge that government bureaucrats do not have the skills to pull this off. But the United States has a successful history of seizing insolvent banks through the Federal Deposit Insurance Corporation. The takeovers contemplated here are larger in scale and would be more complex than those that have generally fallen under the F.D.I.C.’s purview. But the notion that the government totally lacks the know-how to nationalize insolvent banks is not valid.

Safeguards must also be built into the process to curtail political meddling in lending and other decisions.

The aim is to clean up the banks efficiently, rather than allow the problems to become bigger, and then " as soon as possible " to sell the banks back to private investors. They will be smaller institutions. And there will be proper regulations in place to ensure that this catastrophe does not happen again.

Taking over big failed banks will be very difficult politically. But technically it could be easier than many of the elaborate rescues that have been tried and proposed.

On Friday, President Obama’s spokesman tried to calm the markets by reaffirming the administration’s preference for a sound privately owned banking system. We share that preference. But it looks as if the best way to get from here to there is for some of the banks to spend some time in the government’s hands.

Nationalization would likely mean wiping out the big banks’ managements and shareholders. It’s because that reckoning has mostly been avoided so far that those bankers may be the Americans in the greatest denial of all. Wall Street’s last barons still seem to believe that they can hang on to their old culture by scuttling corporate jets, rejecting bonuses or sounding contrite in public. Ask the former Citigroup wise man Robert Rubin how that strategy worked out.

We are now waiting to learn if Obama’s economic team, much of it drawn from the Wonderful World of Citi and Goldman Sachs, will have the will to make its own former cohort face the truth. But at a certain point, as in every other turn of our culture of denial, outside events will force the recognition of harsh realities. Nationalization, unmentionable only yesterday, has entered common usage not least because an even scarier word " depression " is next on America’s list to avoid.

Clinton Urges China to Keep Buying Treasuries (Update3)

By Indira Lakshmanan

Feb. 22 (Bloomberg) -- U.S. Secretary of State Hillary Clinton urged China to continue buying Treasury bonds to help finance President Barack Obama’s stimulus plan.

The two nations’ economies are intertwined and it wouldn’t be in China’s interest if the U.S. were unable to sell its government debt, Clinton said in an interview with Shanghai’s Dragon Television today. China knows it needs a healthy American economy as its biggest export market, she said, adding that the U.S. must take “drastic measures” to stimulate growth.

“We are truly going to rise or fall together,” Clinton said. “By continuing to support American treasury instruments, the Chinese are recognizing” that interconnection.

China, the largest holder of U.S. government debt, boosted purchases by 46 percent last year to a record $696.2 billion as the global recession spurred demand for the securities. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment.

seems to me that the chinese are in a bit of a bind (over the barrel ?) .
i imagine that they would prefer not to buy additional u.s. treasury bills - but they also want to keep their best customer alive .
decisions ... decisions ...
hbg

we will have to face that we can buy our way out of this mess.

In Latest Plan for Banks, U.S. Could Demand a Voting Stake
By EDMUND L. ANDREWS

WASHINGTON " The Obama administration put the nation’s biggest banks on notice Monday that the government could become their biggest shareholder if regulators decide they are not strong enough to weather a deeper-than-expected downturn in the economy.

In an unexpectedly assertive joint statement, the Treasury Department, Federal Reserve and federal bank regulatory agencies announced that the government might end up demanding a direct ownership stake in major banks after they undergo a tough evaluation of their strength, which is to begin shortly.

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In Latest Plan for Banks, U.S. Could Demand a Voting Stake
By EDMUND L. ANDREWS

WASHINGTON " The Obama administration put the nation’s biggest banks on notice Monday that the government could become their biggest shareholder if regulators decide they are not strong enough to weather a deeper-than-expected downturn in the economy.
Cycloptichorn

In other words, they expect it to be a deeper-than-expected downturn. I'm grateful we are in such good hands.