[Obgrfbke]

Nationalize the insolvent banks and wipe out the shareholders.

[VitaliyMurnov]

I'd have to learn more about what kind of CDS shitstorm to expect if we let bondholders get wiped out before I make a decision on that issue.

[russianstallian]

I don't really know. I expect it would, but I'm just not sure.

[WebDocMan]

In the past all those who did the CDS BS would have been executed.

[OvDojQXN]

They're afraid of nationalization, so they're trying to come up with all sorts of convoluted ways to impose restrictions short of nationalization. Ultimately, they're going to need to nationalize or hand out free cash to the banks anyway. I'm really hoping they don't opt for the latter.

[Creelaleps]

They're afraid of nationalization, so they're trying to come up with all sorts of convoluted ways to impose restrictions short of nationalization. Ultimately, they're going to need to nationalize or hand out free cash to the banks anyway. I'm really hoping they don't opt for the latter.

It will be the latter though. Gordon knows for a certainty that he doesn't stand a chance in the next elections and yet he still doesn't have the balls (not to mention the fact that he is partly the problem and this is likely to be exposed if he really goes after the (b)wankers).

Nope the printing presses are being prepared for that wonderful horseshit called 'quantitative easing'...

Buy Gold.

[HowardtheDuck]

Nationalize the insolvent banks and wipe out the shareholders.

A-****ing-men. The shareholders need to get wasted no just have their stock slightly watered down as has been done. As an added bonus if a company is completely nationalized then the bad debts can be easily moved off of their books on to the government's books without risking the bastards will spend half the money on bonuses or new jets or parties or other such crap.

The Oerdin plan of action calls for all banks to be audited a la Roosevelt's bank holiday with those found to be solvent allowed to reopen and operate as normal while those found to be insolvent (which will be most of the major national banks) getting nationalized with this shareholders completely wiped out. The banks can be merged and reorganized to make as many competitive national banks as possible, the bad debts moved off their books onto the government's books, and then in a couple years when the economy is rolling again the government can do IPOs reprivatizing the banks. That's as close to a win we're going to get out of this situation.

[ROYMANgo]

As I said they reopen and conduct business as usual.

[RealCHEAPsoftDOWNLOAD]

It will be the latter though. Gordon knows for a certainty that he doesn't stand a chance in the next elections and yet he still doesn't have the balls (not to mention the fact that he is partly the problem and this is likely to be exposed if he really goes after the (b)wankers).

Yep. Gordon is going to come out of this smelling of poo.

Buy Gold. I read a piece in The Times advising this. How does one go about it?

[diundasmink]

getting nationalized with this shareholders completely wiped out. Why screw the othe 49 percent for the actions of the 51 and the majority, controlling shareholders?

I'd agree with your plan, only wipe out the shares of the folks who were running the businesses, and compensate the other shareholders.

[forotis]

Why screw the othe 49 percent for the actions of the 51 and the majority, controlling shareholders?

Yeah, cuz that was how the decisions were made.

[Mabeavyledlib]

"Quite a spectacle" - Doug Henwood on the Latest Stimulus Package Vote

by Doug Henwood
from LBO News for Doug Henwood

Quite a spectacle in Congress on Wednesday, wasn’t it? Watching the assembled CEOs of our biggest banks testifying really put all our pathologies on display. On one side of the table, the bankers looked like dim and evasive hacks—it was easy to see how they drove their vehicles into the ditch. But on the other side of the table, many of the Congresspeople looked like preening and devious hacks. Where were they while the bankers were driving the vehicles into the ditch? And what really do they presume to do about all this? Nationalize the banks? Ha. More on that delightful topic in a bit.

On Wednesday night, The Nation’s estimable Washington editor, Christopher Hayes (who is “married to…an attorney in the office of the White House counsel”), was on Keith Olbermann’s show, trying to parse the testimony. Hayes and Olbermann came to the conclusion that the bankers live in a bubble, are tone deaf, and have no sense of PR. While that’s true, I think the story is simpler than that. They just don’t care what the public thinks. The entire ethic of Wall Street can be boiled down to this: make as much money as possible as quickly as possible, and hang the consequences. Step on whomever and whatever you have to, just stuff your pockets, and move on.

Olbermann played an excerpt from a conference call featuring James Gorman, co-president of Morgan Stanley, describing how the firm planned to handle its merger with Smith Barney, the brokerage unit that the deeply troubled Citigroup is unloading. Here’s Gorman (edited by me) describing some big cash payments they’ll be distributing to Morgan Stanley and Smith Barney’s top brokers:

Some decisions we have made. Number one, there will be a retention award. Please do not call it a bonus. It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration. Decision number two. The award will be based on ’08 full-year production. I think I can hear you clapping from here in New York. You should be clapping because frankly that is a very generous and thoughtful decision that we have made…. ‘09 is a very difficult year…we understand that. Clearly it would have been cheaper to do it off ’09, but we think it’s the right thing to do and we’ve made that decision.

The audio, by the way, was obtained by Sam Stein of the Huffington Post, who also got that wonderful clip of Home Depot founder Bernie Marcus railing against unions that I played the other week. Olbermann and Hayes attributed Gorman’s use of “retention award” to that same tone deafness. I think it’s cynicism. I think he was having fun, and it wouldn’t surprise me if his audience chuckled.

As I’ve been saying here, it looks like the Obama administration will do everything they can to avoid nationalizing the banks. In his interview with ABC News, Obama demonstrated that he understands quite well the differences between the Japanese and Swedish approaches. I wish I could play the audio, but ABC edited the interview heavily for broadcast, and most of this passage appears only in the transcript.

There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

Now it’s admittedly refreshing to have a president who can talk like this after one who couldn’t. But how much of a departure from Bush’s political philosphy is this really? He admits that the Swedish approach worked better, but then explains that we just can’t do it that way here. It’s un-American, you see. And to make that argument, he mobilizes a lot of nonsense.

Yes, Sweden “had like five banks,” but our major, system-threatening problems come from not that many more institutions. The little guys can be taken care of the usual way, like forced mergers with aid from the FDIC or outright takeovers by the same. Which, by the way, is a kind of nationalization, and something entirely routine, even here in the super-special USA.

He really gets to the heart of it, though, when he gets to the “different cultures” claim. Sweden is a social democracy, and the U.S. isn’t. And so we just have to do things the American way. But our way of doing things is the problem. Several decades of letting financiers do their thing and then bailing them out when they got in trouble have finally put us in a serious crisis. Obama simply cannot get his mind around the fact that our whole economic model is in trouble. So the only way he can imagine getting out of that trouble is by applying the same medicine that got us into trouble. There’s something oddly Hegelian about this: “the hand which inflicts the wound is also the hand that heals it.” But Obama isn’t talking about moving to a higher level of consciousness. Quite the contrary: it looks more like he just wants to go back to the old way of doing things.

Let’s think about what needs to be done. The U.S. needs to consume less, borrow less, equalize the distribution of income so that those of modest means aren’t driven to manic borrowing from those with too much money to spare, and invest in things with a long-term economic and social payoff. A serious economic recovery package would embody that. And some of the original plan did that. But in order to get Republican votes, Obama et al added tax cuts, cut clean energy investment, reduced aid to state governments, and cut back on infrastructure spending.

Yes, of course Congressional realities dictated this in part. But these compromises were also a function of the fact that Obama et al didn’t really have a coherent story about what the stimpak was supposed to do. (Larry Summers once did, but he’s been less vocal on such topics since the inauguration.) But to make that argument—and there’s no doubt that Obama could make it effectively if he wanted to—he’d have to challenge a lot of prevailing economic wisdom. The conventional left-liberal explanation for this is weakness or timidity. But the margins of the last election and the approval ratings in the polls right now do not suggest political weakness. George W Bush came out of the 2004 election, which he won by a narrow margin, declaring himself in possession of a lot of political capital, and not shy about using it. No, it’s not really weakness or timidity. I think the Sweden vs. Japan quote from Obama shows that he’s really a market guy at heart, and has no interest in challenging the orthodoxy—and there’s no radical popular or intellectual movement to force him into doing it. And so the American economy will suffer the consequences of his received faith.

There’s an old story about Tony Blair (which I first heard from a commenter on this site), that great apostle of the Third Way. An old-style Labour MP is said to have complained to Blair about all the right-wing things he had to say to get elected. Blair’s response: “It’s much worse than that. I really believe it.” The same for Obama, I’m afraid. The combination of an economy stuck in the mud and an aroused populace could change that. But not yet.

[FuXA8nQM]

It wouldn't have to be big. A friend of mine had an uncle who had about a hundred thousand dollars worth of gold back in the eighties. He melted it into a bar about the size and shape of a brick, painted it red and used it as a doorstop in his kitchen.

It wasn't until a couple years after he died that the family realized what the bar was.

[OccumCymn]

We've spent entirely too little time meting out punishment. 5% preferreds are not punishment.

In lieu of the guillotine, what would be your approach? The Swiss approach has some flair -- they've confiscated the passports of their bankers.

[VioletttaJosetta]

My approach would be to just fire them all and appoint somebody cheaper. Economists who would work for say $100 000 a year. Anyone who thinks being a CEO of a bank is rocket science is delusional. It's not like they need incentives in order to perform well. If they all decided to quit in protest the banking system would be no worse off than it is.

[Fellionas]

KH, do you believe the nonsense you just posted? If they don't take the money, they fail. If they take the money, the government gives them cover, even if they made millions letting the bank assume unsustainable debt. Limiting incentives to a fraction of something is usually how it's done. Since the banks are hemorraging money, it makes no sense to tie incentives to income, and it seems immoral to tie a bonus to total transactions, when these are negative. The TARP takers are about to meet the bureaucrats in the form of regulators, who are going to want to know how every dime of Uncle Sam's money is spent. Now it is possible to fool these people but not if the bankers are "eager to gamble federal money (since their stock is junior to federal money)."

[11Woxsepmoomo]

Yes, I am. Excellent memory. I haven't been around in a while.

[Reftsheette]

The problem is that nobody's sure which banks are insolvent and which aren't.

Well, you'd obviously have to audit the bank balance sheets first to determine this. Should be a nightmare with all the MBS and the like, but it has to be done sooner or later. Zombie banks are not a good thing. Seriously, as a practical matter how would they even conduct these audits? Literally send an inspector out to a home to determine condition, get a local realtor to adjust that appraisal for local market conditions (both present and projected), hire a lawyer to re-check title encumbrances, conduct a CBR check to reassess likelihood of the mortgagor's default (taking into account projected job losses generally), and repeat ad nauseam until every single mortgage in every single security has an accurate present and future value to reflect on the balance sheet?

There's more than enough talented people out there to do the legwork but the costs would be utterly insane; it wouldn't surprise me if each $100K that the asset side of the balance sheet is nudged toward accuracy would be coupled with $10K in administrative costs expended just to ascertain that fact, and that's a $10K the bank probably doesn't, in actual fact, have. It's this simple paradox that makes temporary nationalization sound A-OK to me, if for no other reason then to gradually get these assets off the books in the way that TARP was originally supposed to do but had no time to do.

[Finkevannon]

Kudos to NGR for prescience, though it seems like the GOP's ironically more on board than the administration:

Bank nationalisation gains ground with Republicans
By Edward Luce and Krishna Guha

Published: February 17 2009 19:44 | Last updated: February 17 2009 21:31

Nationalisation, long regarded in Washington as a folly of Europeans, is gaining rapid ground among US opinion-formers. Stranger still, many of those talking about federal ownership of banks are Republicans.

Lindsey Graham, a Republican senator for South Carolina, said that many of his colleagues, including John McCain, the defeated presidential candidate, agreed with his view that nationalisation of some banks should be “on the table”.
Mr Graham said that people across the US accepted his argument that it was untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received.

“You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.”

Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has recently moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham.

In the early 1990s, Sweden nationalised its banking sector then auctioned banks, having cleaned up their balance sheets. “In limited circumstances the Swedish model makes sense for the US,” said Mr Graham.

Mr Obama made it clear last week that he favoured this model over the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

“They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.”

Senior administration officials acknowledge that the financial rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalisation of some weak banks.

The plan sets out a framework for revealing the extent of the likely credit losses facing banks. Most private sector analysts believe the exercise will reveal that some banks have large capital shortfalls.

Policymakers acknowledge that, if this is so, it will be difficult for those with the largest shortfalls to raise the required equity from the markets; in which case the government would probably have to take temporary control. Moreover, while nationalisation remains taboo in some political circles it is increasingly openly discussed among economic policymakers of all leanings.

“If necessary you temporarily nationalise some of these institutions,” said a former senior Republican policymaker. “There has been a lot of pussyfooting around because we don’t like the word – which strikes me as utter nonsense.”

The time for biting the bullet may be fast approaching. In early April, big institutions publish their first-quarter results. If Treasury stress tests have not yet revealed the true state of their balance sheets, first-quarter results might do so.

“The first week in April – that’s when the children’s party is over,” says Chris Whalen, co-founder of Institutional Risk Analytics. “That is when the obvious will become apparent.”

The Obama administration remains officially opposed to control. Mr Geithner last week said: “Governments are terrible managers of bad assets.”

Others say Mr Geithner may have no choice. “The danger we face is a Freddie Mac/Fannie Mae scenario where government gives the banking sector guarantees and then socialises the losses,” says Adam Posen, an economist. “That’s the worst thing we could do.”

http://www.ft.com/cms/s/0/2ad3b750-f...nclick_check=1

[uC4F0NVL]

That's not true.