Good bank, bad bank all adds up to nationalization

[Eugene]

Source: Reuters

http://www.reuters.com/article/ousiv/idUSTRE50M0LM20090123">Good bank, bad bank all adds up to nationalization
Fri Jan 23, 2009 10:34am EST

By Patrick Rucker and Emily Kaiser - Analysis

WASHINGTON (Reuters) - Whether it's called good bank/
bad bank, troubled asset relief or some new acronym, the
United States appears to be on a course that will lead to
the effective nationalization of some of the largest U.S.
lenders.

Investors have little confidence in the banks' ability to
pull themselves out of the credit mess and are growing
frustrated with a government response seen as haphazard.
This is putting pressure on President Barack Obama to
come up with a bolder plan.

His economic team has dropped strong hints that an idea
to buy up bad assets, which was proposed but then
discarded under former President George W. Bush, may
soon be resurrected.

While the word "nationalization" is rarely uttered in
official public discussion, the end result may be the same.
By carving out the bad assets that are blocking the normal
flow of credit and then pumping taxpayer money into the
remaining healthy part, the public's stake in these
institutions may exceed private holdings.

-snip-

Read more: http://www.reuters.com/article/ousiv/idUSTRE50M0LM20090123

[truedelphi]

1. Abt six weeks ago, some local guy wrote a letter to the editoer

Saying that it was a shame that we didn't use "Trickle Up" to rescue the United States economy.

Yep, instead of making each man woman and child responsible for $ 25,000 in BailOut funds, why not send them the $ 25,000 - the household could then pay off the mortgage, the student laons and the credit cards. These payments woul dtrickle UP to the banks that way.

Instead, Paulson and Kashkari have enabled banks to stockpile cash reserves. Some of which gets used to buy 20 Billion dollar investment items in Spain of all places.

[jwirr]

2. Very good idea. I would be free and clear with enough left over to

put a good hunk of down on that trailer house I want. I also would be helping my bank because I owe most of it to the bank.

[On the Road]

3. What I Don't Understand is Why the Author

equates buying troubled assets with nationalization. If the banks only offload the bad debts, they stay private.

What most of the TARP money was actually used for was in my mind closer to natonalization -- the government taking a stake in the banks via preferred stock. It is far better for the taxpayer than the initial plan.

[patriotvoice]

5. Nationalization = "public's stake in these institutions may exceed private holdings."

So, I believe the author says that if We the People own a majority of institution X, then X is "nationalized."

[On the Road]

6. Right, That's What I Think

but if more money is put into preferred stock as per the current TARP, at some point the government will be the majority stockholder.

If the government simply buys bad assets, they have the assets and the banks have the rest of their business plus an infusion of cash. I don't think that will turn out as well for the taxpayers.

[truedelphi]

7. How was it better for the taxpayer than the initial plan.

According to what I see and hear, the major banks receiving the taxpayer funded BailOUt funds are simply hoarding the money and/or using it to acquire the assets of "more troubled" banks.

Kucinich really questioned Kashkari about the latter. If a bank is insolvent, why does another bank need 2 trillion dollars to purchase it?? Also, out of 350 Billion dollars of the first tranch of TARP payments, again according to Kucinich, only 457 homes Had been saved from foreclosure. Yet this TARP program was sold to the American taxpayers as a vehicle that would allow for many Americans to stay in their homes.

And why oh why did one American financial institute (I think it was Citigroup) allowed to acquire a 20 billion dollar bank in Spain?

[Skink]

4. Buy preffered stock in the banks. Do not overpay for bad assets.

Overpaying for bad assets is just another way the republicans want to burden us with debt.