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Bank Nationalization - Economic Impact

  • Poll

  • Are you in favor of the banks being nationalized in the United States
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  • #1
  • First Post: Mar 9, 2009 1:58pm Mar 9, 2009 1:58pm
What are your thoughts on the current events occurring involving the banks and bank nationalization?

video


cnn - what 'nationalization' means?

Oanda article:
The Bank Nationalization Question

Wikipedia:
Bank nationalization
Before Forex I was tall, and clean shaven. Now I am an Ewok.
  • #2
  • Mar 10, 2009 11:30am Mar 10, 2009 11:30am
nobody cares to share their opinion?
Before Forex I was tall, and clean shaven. Now I am an Ewok.
  • #3
  • Mar 10, 2009 12:36pm Mar 10, 2009 12:36pm
I dread the thought of 1) what the "collateral" will ultimately be for the nationalized banks to keep their credit lines open and 2) how they will deal with foreclosures, rates and other debt collection when they need the money. At the current time there are discussions of judges "changing" legal rate contracts. Imagine if the government needed money and everyone who is doing just fine on their mortgages ends up getting a call from the Nation of Citi Bank and they say... "Your mortgage by order of the Court District of xxxxxx states that your current rate will jump 1.25%." I mean, it is the government, they are expanding, who knows what they will think of to destroy the middle class?
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  • #4
  • Last Post: Mar 11, 2009 1:56pm Mar 11, 2009 1:56pm
Quoting StockKJay
I dread the thought of 1) what the "collateral" will ultimately be for the nationalized banks to keep their credit lines open and 2) how they will deal with foreclosures, rates and other debt collection when they need the money. At the current time there are discussions of judges "changing" legal rate contracts. Imagine if the government needed money and everyone who is doing just fine on their mortgages ends up getting a call from the Nation of Citi Bank and they say... "Your mortgage by order of the Court District of xxxxxx states that your...
well thought out and i'll have to give that more thought. thanks very much for your contribution.
One would argue that nationalization was necessary to 'save' the banking industry because of the gravity of the situation. Just read an article that ex Fed Chairman Greenspan during the meat of the housing climax claims the fed was not the cause of the housing collapse. Makes me wonder why they didn't do anything to prevent it. I'm not to well versed in the history of nationalization but what i think of is the soviet union. However, I have read that in some cases nationalization has worked such as in Sweden.
The Fed Didn't Cause the Housing Bubble

 Greenspan says Fed didn't cause the housing bubble

Quote
Indeed, some industry experts are pointing to the “Swedish Experiment” as proof of the need to nationalize the US banks. In 1992, the Swedish government assumed control of the banks, cleaned up the balance sheets of those that were capable of continuing, while forcing others into bankruptcy. The newly revamped banks were eventually re-privatized but as much smaller institutions.


Reasons For Nationalization
It is understandable that the US government feels compelled to prevent more banks from failing; when Lehman Brothers collapsed last September, reaction in the markets was instantaneous. Stock prices – especially in the financial sector – plummeted and credit markets froze solid and have remained so pretty much since. George Bush took a lot of heat for selectively saving some banks while letting others fail or be bought up by competitors and you can bet that President Obama will not put his administration in line for the same sort of criticism.

Despite this, one of the arguments against the US government’s approach to the bank rescue to date is that a great deal of public money has been handed over to privately-held banks with little in the way of taxpayer protection or even rules for how the money is to be used. It is a widely-held belief that both Citigroup and Bank of America need an immediate infusion of cash and the government is their last resort. If Obama and Geithner do not take outright control of these banks, except some form of payback guarantee to be included as part of any support agreement and this could very well set the model for how the government deals with the other banks.

There is also the question of moral hazard to be considered – if privately-held companies come to expect that they can count on the government to bail them out anytime they run into money problems, then the temptation to take irresponsible risks for higher reward may be too compelling to resist. By nationalizing the banks rather than simply bailing them out, shareholders and executives will not be protected when banks take extraordinary chances to chase unnatural profits. To do so only rewards the reckless behavior that got us into this mess in the first place.
Before Forex I was tall, and clean shaven. Now I am an Ewok.
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