Dan Denning – our guru said ( and I fully agree with him)Did it occur to anyone that the best thing to do is nothing? Let the banks fail. Let the businesses fail. Of course it’s going to cause massive chaos, job losses, and insolvency. But isn’t that where we’re headed anyway?
Doing nothing is a kind of action. And doing nothing is something that governments haven’t tried yet. They should try doing nothing to see how it goes. The result could be surprising. And it certainly won’t cost A$42 billion or US$787.
Chanting sirens
Why anyone can provide detail forensics on how the current economical crisis came about? CNN or any other network have the know how and information! Stop supporting the myth that where the home owners.
Can you present who is to blame?
the reckless hedge funds or the Home owners that trusted the siren chants of the banks that had to play with these hedge funds?
Is it Madoff or the hedge funds or the investors that believed in a never ending return to good to be true that collapsed the economy? History has showed since we have track we go up and down and the higher we go the lower we go next time.
The media keeps on banging the home owners that purchased homes that they could not pay or tried to make the home owning a second income source. And all the blame is on the home owners. Lets not forget that financial institutions where also chanting sirens that provided the loans recklessly at unsustainable interest rates how stupid is that, Bank executives know for a fact that no economy can’t have never ending growth and they kept on chanting for main stream to buy homes and buy homes instead of renting and to making a personal commercial activity. If I where to have money to establish a bank I would monitor who I lend the money to since this is my livelihood.
Stop blaming only the home owner, you can even stop mentioning the home owner. Is more to blame that the Scientist that model the hedge funds and the Bank executives that keep on complete denial of the unsustainable model they where building.
But my superficial comment can never be compare to a network to be brave to show the true forensics of our situation and stop only focusing on the home owner as the only culprit.
This can bring closure and we can move on since we can understand where to fix and how to fix it.
I smell a rat! When the Republicans start advocating a program or solution at the top of their lungs, I have to wonder what they are up to. It seems odd to me that this is their topic of discussion lately, especially since they don’t want government sticking it’s nose in businesses, I think it’s a trap. They want people to believe this is the answer, thankfully most of the responses seem to be in favor of letting the banks fail. I use a credit union that did not make stupid lending decisions. It’s good to know that some financial institutes did not fall for the risky practices that got us into this mess. Isn’t this just like in school when the class moron did something wrong and the entire class payed for it by not being able to go for recess? It was a form of peer pressure that teachers use to correct bad behavior. Having discussions like this has the same effect, we are as a peer group letting the class moron know, we want our recess! Stop being stupid and ruining it for everyone else!
The government is killing the banks and the economy. It is not just wealthy investors, but also us middle class folks who own a lot of shares of these big banks and financial institutions, directly or through mutual funds. In the name of stabilizing banks, they are wiping out shareholders, decimating wealth, and putting further downward pressure on consumer spending. They should clearly define what they will do in worst case scenario. Following steps should be more than sufficient, yet not have the cascadign downward pressure we see in the stock market:
1. Inject capital
2. Stop all dividend payments, including dividends to govt. In return, banks can be forced to make more risky loans. High interest rates on tarp can kill the banks. It is like giving such a heavy medicine that kills the patient.
3. Replace management, cut executive pay, cut costs, and put them under strict oversight if necessary. (Although I doubt obersight will do much; Fannie and Freddie collapsed during ovesight and the CDO fiasco went on under the very nose of Mr. Greenspan. )
In short, punish the ones who deserve it, not common shareholders who are mostly ordinary people like you and me. Wiping out shareholders will threaten investor faith in American equity markets. And that faith will be very hard to restore.
Let’s see. So far the government has screwed up health care, education, and everything else they’ve gotten involved in. Now we’re talking about nationalizing banks?? I believe the saying, “Fool me once shame on you” is appropriate in this case. Obama and the rest of our elected officials need to stop trying to play the role of economist. For Christ sake they’re not even good at their own jobs……whatever that is. Let’s take BOA for example. They service 1 out of 2 house holds in the US. Imagine what would happen if the government said, “OK we are now involved in the personal financial affairs of 1/2 the American Familes”? It would create a run on the bank that the FDIC wouldn’t be able to handle thereby creating a much bigger problem. Nationalization is NOT the way to go!!!!!
While I firmly believe that “banking is too important to be left to bankers” I fail to see how the Federal Government is equipped to run failed and failing banks. A better answer is President Obamas mortgage relief program. If the problem is toxic assets we should do all we can to detoxify them. Otherwise the problem does not go away. Government bank bailouts only transfer the associated risk from the banks and investors to the taxpayers.
I agree with Pete Atkins of Iowa, what’s good for the goose is good for the gander. If we insist that union auto workers work for the same pay as non union autoworkers why not insist that the people who play with other peoples money for a living do the same thing. At least the auto workers actually contribute something to the economy.
No! There should be no bailout. If the bank is dead, then so be it.
However, there should be very strict rules and regulations in place and the government should monitor these and have panalties so severe that no-one will try this caper again.
If the shareholders miss out and a few banks go bankrupt – then that is what has to be.
The innocent people can’t be expected to bail out these fraudlent banks.
A restructuring, like that proposed for the auto industry, is necessary. We could start by reducing ALL wages, benefits, bonuses and salaries at the banks to the level “enjoyed” by the non union auto workers in the South. After all if it is good enough for the UAW it is good enough for the parasites and salesboys in these banks and investment companies. This would free up a lot of cash. The same level of compensation could be given to the auto company leadership.
Oh, and prosecution for the bankers. Every one of them has violated the letter of some law. It would just take a little work to find which ones. Marion, Illinois would be a good place for them.
“A fool and his money are soon parted.”
“Fool me once, shame on you. Fool me twice – I won’t get fooled again.”
The simplest solution is to not pay them at all, they should work for the sheer love of it. Like actors and actresses and musicians and singers and preachers and …
After all, they worship money, it should be something they never quite get their hands on. Just as preachers worship God but can’t quite get God to do their bidding – or dirty work.
No, they shouldn’t. Most of the loans are good, as are the other assets: offices, etc. These and the deposits should be sold to the highest bidder. If the equity holders and the bondholders lose out, well, so be it. The risk premium they wanted when they bought in assumed that this was a possibility. If the equity holders and bondholders want to sue the managements to recoup some of their losses, that is their business. We need to eliminate the zombies quickly before they infect other banks. In the 1980s, zombie S&Ls were allowed to stay open until they reeked. We need to avoid that. There are over 8,000 banks in the US. Only a handful have screwed up. Get rid of them and their smug managers.
I find it quite extraordinary to read the comments posted against this article – those that support nationalization really should ask themselves some simple questions:
How many of the US businesses would need to be nationalized or sold off..?
Who stands to gain from these nationalizations/ sell offs…?
How effective is the US Senate able to make swift and bipartisan decisions…?
Does the government really have the capabilities to manage the break up of large global financial services business…?
How do short sellers gain financially in a fear ridden financial market place…?
Who are the those that are short selling the market place…?
In my humble view, the only purpose of the media frenzies on nationalisation is to create doubt in an already fearful market place to provide financial gain to the ’short seller’.
The ’short seller’ is an animal that feeds off the fears of others – while this is a human value, it is not one that many find attractive.
Nationalize the banks, socialize the medical system, let the greedy automakers fail, and eliminate the IRS. We need to have a national flat sales tax in place of our current income tax, and we’d see the national debt start to shrink almost immediately.
The only good Zombie is a dead Zombie – kill the zombie banks before they spread.
The bailouts and taxpayer-financed loans being dispensed to failed banks are delaying any recovery in the banking system. These bailouts are consuming ever-greater quantities of taxpayer wealth. Meanwhile, what remains of viable banks are being steadily undermined by new government edicts and future tax burdens to pay for the bailouts and loans made to the losers of today!
Survival of the fittest – let the losers die.
“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”
Adam Smith, The Wealth of Nations
This was a warning, and one of the reasons our country was founded. Let the bad banks fail, start over but refine policy so that banks can succeed in the future. Do not force banks to lend to people that are not credit worthy. That is what got us into this mess in the first place.
Banks are already “nationalized”. The money tax payer spent on them could have bought them 3 times…
By the way, anyone still feel we are safer than 8 years ago? LOL
Hey, here’s an idea: how about we round up the bankers on wall street where the subprime mess started and start throwing their rear-ends in jail!
And the rest of these corporate snakes who screwed us, sold their companies for millions and are now in comfortable retirement. We are sitting back watching this whole thing unfold, and no one goes to jail. These bankers, and our government watching them will remain crooked because they look out for each other. Make an example out of these S.O.B.’s and it will go a long way.
Watch the scene in John Adams, where they strip, then tar and feather the tax collecting boat captain on the loading dock during the tea delivery. Then sit Barney Frank down and make him watch it. He’ll probably just wonder where the ACLU was back then.
Absolutely not. Many private investors (Wilbur Ross, I think, has said this although others feel the same way) would like to buy up struggling banks and bank assets, but the government keeps getting in the way by throwing tax dollars at the issue.
The Fed has been throwing taxpayer money at this problem for a year and a half now, and it hasn’t accomplished anything. It’s time for the government to step back and let the private sector handle this.
The banks should be sold through the existing FDIC processes. Japan’s big mistake was to keep the zombie banks in business when they should’ve been liquidated.
There are healthy banks out there that managed their mortgage risk well and will gladly take over the business of these banks. Let them do so through the FDIC.
However, I’m sure Congress will continue with its socialization of economic losses agenda.
We need more capitalism here, not less. These banks mismanaged their risk cost. . . Now, it’s time for them and their shareholders to pay the bill.
“If the American people ever allow private banks
to control the issue of their money,
first by inflation and then by deflation,
the banks and corporations that will
grow up around them (around the banks),
will deprive the people of their property
until their children will wake up homeless
on the continent their fathers conquered.”
THOMAS JEFFERSON
Sweden had a tough, cost effective, Bank Nationalization plan in 1992. I encourage all readers to research it.
Bad Banks and their shareholders lost, Good Banks were left alone. Confidence
in the Swedish Banking sytem was restored in several years. Why re-invent the wheel?
You guys are nuts. Nationalizing means letting government run the banks. Anyone in their right mind will not want the government to run ANYTHING. Look at how inept the SEC was in enforcing the existing laws about bank reserves. The government cannot chew gum and walk at the same time. We should let the weak banks die a natural death while ensuring that the depositor interests are safeguarded. From the ashes of the dead banks will rise new and more efficient financial institutions. Otherwise we will create Zombie banks that will be good for nothing except to suck the day light out of our kids’ futures. Each bank will become part of the pork that the government is.
Have any of those calling for Nationalization considered the impact on our financial system? Bank common and preferred equity is held by thousands of Banks and Mutual Funds around the world, millions of individual 401K’s.All would take a major hit to their Balance Sheets that could fatally imact their solvency.Let’s use our heads in coming up with a solution, not our emotions.
Agree with the comments by D. Major. The common shareholders were negligent in supervising their investments as long as the Ponzi schemes returned profits; they deserve to be wiped out. I would add fire the management and make it illegal for them to work in a financial institution in the future (also make that apply to the managers who have already left on their golden parachutes).
How can you nationalize some banks but not others? You expect a nationalized bank to operate in the same environment as one that isn’t. Please explain how that would work?
Also, all the government knows how to do is spend seemingly limitless amounts of taxpayer dollars. Why should I believe that any government agency has any clue how to be profitable? That’s the blind leading the blind right there.
One person being bad doesn’t logically proove that another is good? Huge flaw in logic.
The banks need to be liquidated. Chapter 11 would have been better, but nationalization and liquidation is better than $3 trillion in bailouts. I would love to see a return to market principals. “Too big to fail” needs to disappear from the lexicon, in the best case by letting big entities fail and dealing with the aftermath and avoiding moral hazard, but in the better than status quo case, by regulating to prevent entities from getting too big in the first place. Unfortunately, our politicians don’t have the stomach to see their corporate campaign donors and friends fail for making bad decisions and love giving them our tax money (some of which will feed back to them). Whatever happens, no more bailouts or sub-market loans of different types please!
Oh and on this topic. No, nationalizing banks is not an answer. Economics takes care of those who can not take care of themselves. Oh and by the way, it is unconstituional.
why do we have to bail out the banks?
why do we have to nationalize the banks?
why do we have to create “bad” banks?
just let the ones fail that are going to fail. it is inevitable that the weak ones will fail. once they fail, all their toxic assets will be sold off at their REAL value and we can get on with it. consumer and national confidence is already about as low as it can get and most people EXPECT some bank failures.
if there is an economist out there that can explain why my simple plan will not work or what calamities it would cause, please enlighten me.
With Congress and the Administration already telling the banks what the terms of their existing loans must become … and for political reasons, not economic reasons … I believe that nationalizing anything, even ‘temporarily’ would dig the hole deeper.
Sound lending won’t return until all the players in the game agree on what sound lending by depository institutions consists of and they all enforce it.
Having worked in banking since 1970, I am convinced that none of the regulators, CPAs, Boards of Directors, or salesmen/managers of the banks has a clue as to what safe and sound lending looks like.
sub-prime and alt-a mortgages were unsafe and unsound from moment one. When they were 1/2 of 1 percent of mortgage loans, the problem was manageable. After they became 25 to 50 percent of all mortgages made, they sank the system.
Feel free to go back to the news archives of 2000 and find out which regulators, CPAs, and Boards of Directors were telling their hired salemen/managers that these forms of lending were too risky.
Btw, imho, the class action lawsuits that we should be seeing against all the CPAs and Boards of Directors haven’t yet appeared. When they do, the insurance firms for those entities will all go bankrupt paying the claims, as well as the firms themselves.
The mess has a long way to go to get cleaned up — however, the government has a very long history of making messes worse, not better.
What ever happened to “you reap what you sow”? For almost 15 years we have done everything we possibly could to get here now, everyone has a hand out. Guess what? Tough luck and tough love. We enter contracts we can not afford, we spend money we can not afford and in the end we come up with a short term solution instead of a long term answer. For the first time in my 35 years I am really thinking this is the beginning of the end. And this just is not Obama, who has only a millisecond to deal with this. This goes back years and years of entitlements, misuse of taxpayer money and greedy, worthless congressmen who should only be allowed to vote on laws and a “balanced budget”. These things then trickle down to local governments who have council people who are self important as well spending money they should not have. If you spend money the way these past administrations (and this congress as well) you should stand trial for nothing less than treason.
I happen to agree, that temporaritly nationalizing the failed banks, in order to sell them in pieces to buyers, would help Americans. By reducing them to an entity which can not be deemed “too big to fail”, we won’t have to baiol them out again down the road.
As for Mr. Mason and his suggestion that Goldman Sachs could be saved? Might I remind him, that this company wasn’t even considered a bank till 3 months ago, and the only reason for them to change, was to get access to bailout funds.
No thanks.
Bank of America grew too large too fast by making expensive acquisitions.I believe it would be in the best interest of the country to nationalize and liquidate it. There are already too many large Banks and B of A never really catered to the small consumer. Their wallets only opened to the big money players.
We have no choice, nationalize the banks, clean them up, break them up and sell them back to the public in a few years.
Guarantee all deposits, wipe out common shareholder and pay bondholders with what is left if anything.
Germany, England and France are now looking at this solution.
Oh I forgot, fire management
Paul, this is one of your best columns that I can remember.
Yes, the government should ‘nationalize’ the struggling, biggest banks. This solves three problems. First, it takes out zombies that are dragging down markets and profits for all other banks. Second, it reduces the ‘too big to fail’ problem by reducing the size of the remaining biggest bank. Finally, it provides leadership and removes fear of the ‘what if a big bank fails ?’ types by showing that it’s for the best. No bank should be allowed to become bigger than the Fed ever again (like Lehman was). The small and medium banks can easily fill the lending void, as there is no shortage of banks. We need to dig a deep pit, throw all of the financial derivatives into it, and bury them, as they caused the cancer that suddenly spread around banks of the world.
I nominate AIG and C to be the first zombies to be nationalized and liquidated. FNM and FRE are probably in that category, too; they need to be wound down and replaced by a smaller, regulated version of themselves, perhaps based on the FHA/GNMA model. A lot of the struggling banks will right themselves once they see that we’ll close them down if they don’t clean up their acts.
Yes. Bank of America seems to be a good target. It has a nice name that fits in a government owned bank…
The government cant do any worse than the existing bank leaders. They should have let the banks fail, it would have made NO difference in my life. If a bank takes government money everyone above the teller level should be FIRED!
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Dear Mr President. Leave it to the damn government to make something worse and drag it out longer then it should. Lets face it, the banks screwed up and are in bad shape. Some worse then others. If a bank is insolvent, then the FDIC should step in, kick out management and liquidate the assets. Weaker, but solvent banks should be merged with stronger banks. If Citi and BofA fall into the category of insolvent…then liquidate them. The shareholders have already paid the price in negative total returns. Why let the pain continue? Sure, people will be ticked off with that, but you have to take a stand. We, the American people, need to feel confident that you know what you’re doing. The idiotic and crooked bank execs need to have an example; you screw up, you’re closed down and kicked out with NO PAY OR BONUS. You cant please everyone, Mr President. You cant be secretive either. If you dont have a plan, dont make it up as you go along. Just say its more complex and needs more thought. Honesty. You should also tell the Clowns of Capital Hill to shut up. They cant run their own jobs without putting themselves first and most of them never ran a business. They run off at the mouth and it has the worse effect on our confidence.