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February 21 2009
Nationalizing the Banks
Reading and watching the news, I'm coming to think that some banks may in fact actually be nationalized in the coming months. Consider the following:
1. The continued deterioration in the
economy in general and the housing market in particular. As more and more people lose their jobs
and housing prices continue to decline, the quality of the assets on the books
of the banks is falling precipitously.
On February 12, 2009, the New York Times wrote the following:
Some
of the nation’s large banks, according to economists and other finance experts,
are like dead men walking. . . A sober assessment of the growing mountain of
losses from bad bets, measured in today’s marketplace, would overwhelm the
value of the banks’ assets, they say. The banks, in their view, are insolvent
2. The second trend is the rapidly
escalating talk of the acceptability – if not inevitability – of the federal
government nationalizing some banks.
When pressed at today’s press conference, Presidential Press Secretary
Robert Gibbs would not specifically rule out nationalizing Bank of America and
Citigroup. The attached chart
gives an overview to the cascade of (bipartisan) commentary expressing openness
to nationalization.
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Given this uncertainty and then adding in the mounting
near-consensus about the likelihood of nationalization, it would seem to be extremely riskyto be invested in the financial services sector at all. <!--endfragment-->
