Nationalization, schmationalization

[one...two...tree 2,762]

Unhappy with Obama's stimulus package, his housing plan, and his Treasury Secretary's approach to the banking crisis, economist Tyler Cowen is ready to pronounce a verdict on the new presidency: "The simple truth is that so far economic policy has fallen short of being good."

Now, if libertarian-minded Cowen was happy with everything Obama was doing, a great many other people -- including plenty of economists -- would likely be quite distraught. There is no pleasing everyone: Obama is either not doing enough, or is he is doing much, or he is just doing it flat-out wrong. Hey, no one said being President was easy.

I think a case can be made that, given the political constraints, the stimulus package was about the best the White House could pull off (and, if you actually believe that governments should, well govern, there's plenty of stuff in the recovery package that is worthy in and of itself, whether or not it can truly be described as "stimulative.") I also believe the housing plan was more comprehensive and ambitious than most people expected, even if it does let a nation of spendthrift borrowers off the hook.

But there is no doubt about the weak link in this triad: the lack of clarity on how the Obama administration intends to deal with the problem of insolvent banks that are too big to fail has indeed "fallen short of being good." On Friday morning, stock averages fell to their lowest point in eleven years and the big banks led the way down. At the same time they are unloading bank shares, investors are also busily buying up insurance protection on bank debt. They are either afraid that "nationalization" will wipe out bondholders and shareholders, or they're nervous because they just don't know what is going to happen. Uncertainty rules Wall Street.

The Obama administration has contributed to that uncertainty by stressing in public an opposition to "nationalization" but failing to deliver any specificity on how it intends to proceed otherwise. Ironically, it's possible that the Obama brain trust may have decided explicitly to downplay the likelihood of nationalization, under the assumption that such rhetoric would spook the markets even further. That doesn't necessarily mean Obama, Larry Summers, and Tim Geithner are pawns of Wall Street. It could just be that they made a strategic decision to speak softly before making an intervention, rather than signaling their intentions and risking an even higher level of chaos. It's OK for Alan Greenspan to start talking positively about nationalization; each and every utterance by the Maestro no longer moves the markets like an electric shock. But if Bernanke or Geithner or Obama say the word, people will jump.

Whether or not such a strategy was in place is moot now. Investors are convinced some kind of intervention is inevitable. So they're dumping bank stocks, which further weakens the financial positions of the big banks and thereby virtually ensures that intervention is required. Fear of nationalization begets nationalization.

Obama and Geithner could conceivably have mitigated the damage by making clear from the outset that "nationalization" is an unnecessarily loaded term. As has now been pointed out by voices across the political and economic spectrum, the goal should be some kind of government assisted bankruptcy, restructuring, and reprivatization. The FDIC does this kind of job all the time -- although not, to be sure, on the scale required by a Citibank or a Bank of America.

Today, a month into his term, President Obama has far more political cover to justify a strong interventionist move than he did just a few weeks ago. When Alan Greenspan and the South Carolina Republican senator Lindsey Graham and Paul Krugman and yes even Tyler Cowen all support a government-mediated restructuring of ailing banks, the tactic doesn't seem quite so radical, does it?

But even as I wrote that last paragraph, the wire services reported that stocks rebounded late Friday on the news that that the White House "said it strongly believed a privately held banking system was the correct way to go, tempering investor fears about possible nationalization." CNBC also reported that "the U.S. Treasury department will provide some details on the Obama administration's bank rescue plan next week."

So here we go again. I look forward to learning more. But Treasury Secretary Geithner better have the goods this time, because the whole world will be watching, and no one will be in the mood to cut him any slack.

― Andrew Leonard

http://www.salon.com/tech/htww/2009/02/20/...;aim=/tech/htww

[Jasman0717 9]

Ron Paul isn't happy either or was that rupaul

[one...two...tree 2,762]

Ron Paul isn't happy either or was that rupaul

rupaul

[I AM NOT THAT GUY 5,715]

But even as I wrote that last paragraph, the wire services reported that stocks rebounded late Friday on the news that that the White House "said it strongly believed a privately held banking system was the correct way to go, tempering investor fears about possible nationalization." CNBC also reported that "the U.S. Treasury department will provide some details on the Obama administration's bank rescue plan next week."

'Impossibly Hard to Call a Bottom'

Stocks limped their way through Friday's session, with the usual suspects in the Dow Jones Industrial Average pushing the bellwether index even further past its bear-market lows.

The fear trade isn't just to sell stocks but to bet on a decline. Notably, puts, or the right to sell stocks, have ratcheted up for the better part of a month. Moreover, short-interest levels for banking stocks such as Citigroup and Bank of America have moved higher in the past two weeks.

"It's basically impossibly hard to call a bottom for bank stocks," said Craig Peckham, equity-trading strategist with Jefferies. "And with the inability of the marketplace to pinpoint any base value for banks, the loss story and capital-erosion picture continues to drive shorts."

http://online.wsj.com/article/SB1235173522...=googlenews_wsj

[mawilson 2,133]

"It's basically impossibly hard to call a bottom for bank stocks,"

What's so hard about it?

The bottom is ZERO - at least for those that will get nationalized.

[I AM NOT THAT GUY 5,715]

[I AM NOT THAT GUY 5,715]

Top Republicans say banks should be allowed to fail

NEW YORK: John McCain and Richard Shelby, two high-profile Republican senators, said Sunday that the government should allow a number of the biggest U.S. banks to fail.

"Close them down, get them out of business," Shelby, the senior Republican on the Senate Banking Committee, said on the ABC television program "This Week With George Stephanopoulos." "If they're dead, they ought to be buried."

While the Alabama senator did not say which banks should shut down, he suggested that Citigroup might be on that list, saying the bank has "always been a problem child."

McCain, appearing on "Fox News Sunday," echoed that sentiment without identifying banks. McCain, who lost the U.S. presidential election in November, accused the Treasury Department of avoiding the "hard decision" to let "these banks fail."

The department made its own news Sunday, filling three of the top positions under Treasury Secretary Timothy Geithner. Alan Krueger was named assistant secretary for economic policy; Davis Cohen was chosen as assistant secretary in the office of terrorism and financial intelligence, and Kim Wallace was named assistant secretary for legislative affairs. The announcements addressed growing concerns that even as the Treasury has worked furiously to craft bank bailouts over its first six weeks, the department still had left top positions unfilled.

The withdrawal last week of Annette Nazareth, Geithner's prospective deputy and a former commissioner at the Securities and Exchange Commission, touched off questions about whether staffing problems might be slowing the administration's response to the economic crisis. The position of deputy treasurer remains open.

The Treasury is pursuing a strategy that seeks to avoid either the failure or nationalization of the biggest banks. In declaring his support for closing giant financial institutions, Shelby pointedly disagreed with the position taken by Senator Lindsay Graham, a fellow Republican, who suggested two weeks ago, also on "This Week," that the banks might need to be nationalized.

Obama made clear in an interview published Sunday in The New York Times that he did not want big banks to fail, saying his administration "would take more significant action to deal with those institutions."

"But the point is that our commitment is to make sure that any actions we take to maintain stability in the system, begin to loosen up credit and lending once again so that businesses and consumers can borrow," he said. "And if they can, then you're going to start seeing businesses invest once again and you're going to see people hired once again, but it's going to take some time."

A member of Obama's economic team also pleaded for patience Sunday as Americans looked for signs that the government's huge spending efforts were helping the credit markets and the economy.

"We should give it some time to work," Peter Orszag, director of the Office of Management and Budget, said of the $787 billion stimulus package.

The three Treasury nominees announced Sunday all face Senate confirmation.

Krueger, a longtime Princeton economics professor, was chief economist at the Labor Department under President Bill Clinton. Krueger wrote a column on economics for The New York Times from 2000 to 2006 and is a contributor to Economix, a New York Times blog.

Cohen was until recently a partner in the law firm of WilmerHale, working primarily on civil litigation, white-collar criminal defense and internal investigations as well as advising on hope to stop money laundering.

Wallace was previously a managing director at Barclays Capital. From 1989 to 1994 he served as a legislative aide to George Mitchell, who was then Senate majority leader.

http://www.iht.com/articles/2009/03/08/business/shelby.php