February 18, 2009

Nationalization and Sen. Graham

Sen. Graham thinks that nationalizing the banks shouldn't be taken off the table. Of course, some of his fellow Republicans think he's crazy...

“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.

It's the comment from Rep. Myrick that really made me laugh since the banks have done such a bangup job of running things on their own. That aside, this is not such a good idea. On the surface, I'll concede the market cap point to Graham...

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.”

Well, maybe... maybe not. See, if you BUY BofA, you get the whole thing. And you get to fix it. What the government is doing now is buying preferred shares and loaning them money, basically parking some bad assets until the securitization market (which, just FYI, is way bigger than the banks) recovers. Then we get our money back. If we nationalize, we get the whole thing, write downs and all, uncertain management and when we go to spin all this back to the public, who's going to want to buy it now that they know nationalization isn't out of the realm of possibility? Not and FDIC takeover but a real banana republic style nationalization?

If you want to get pissed about something, get pissed about this. And get even more upset about Treasury's spin on it...

The Treasury Department said lending likely would have fallen further without the roughly $200 billion that has been provided to banks so far, given the sharp downturn in the economy.

"Loan activity was resilient in the face of the worst economic downturn in decades," the department said.

Uhm. That's the banks lending their own money. That's been largely fixed. What hasn't is securitization, the shadow banking system. They don't need cash and there is now way to nationalize them because they aren't broke. The only thing you can do is print money and put it to work. Eventually, when the shadows realize that by sitting on the sidelines they are losing money to inflation, they'll get back in. Of course, we'll all get to suffer from inflation which is neat.

OR, we could start refinancing these assets and get the system working again.

Until we fill the almost $10 trillion hole in the economy, it's going to get worse.

Posted by mcblogger at February 18, 2009 12:47 AM

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