Comments on: KC Fed President for Temporary Nationalization

By: KC Fed President for Temporary Nationalization | EthicalMarkets.com

KC Fed President for Temporary Nationalization | EthicalMarkets.com — Wed, 11 Mar 2009 20:07:37 +0000

[...] The Baseline Scenario Posted: 07 Mar 2009 01:10 PM PST [...]

By: Chuck R

Chuck R — Tue, 10 Mar 2009 18:54:03 +0000

We need to look at a larger grander historical perspective. The countries and societies that have flourished are those which have had ready capital for investment, research and housing. At this point we do not have this and all the bail outs in the world will not correct this basic economic fundamental.
The only reason to prop up the current banks in trouble is to protect current depositors and protect the FDIC from collapse.
If we take the same amount of money being used for the bail out and use the $850 billion for housing and commercial loans at reasonable rates we will have a long term solution to the housing and economic down turn. We can prop up banks as much as we want but if that money is not going back into circulation what is the purpose.
Housing values will continue to drop until there is a market for them. If I cannot get a loan it does not matter how bad I want your house.

The bail out is a short term bump until that money is gone and it will be gone. It is a band aid over a huge wound. It does not cure the underlying basic economic problem with is capital, we cannot afford to get this wrong and I think we have

By: Philip H.

Philip H. — Tue, 10 Mar 2009 13:06:14 +0000

Having read the entire paper – I’ll say two things: First, its good, and should be in Mr. Obama’s overnight breifing book if it isn’t already. Second, I wish more of my federal colleagues would learn to write that well.

By: Edward G

Edward G — Mon, 09 Mar 2009 18:23:52 +0000

The argument against nationalizing banks is silly and self-defeating. The Obama Administration needs to stop worrying about inflaming unlicensed plumbers in Ohio, and start fixing the bank governance problem. Not only did incompetent bank management get us into this mess, the same bank management has squandered bailout money on bonuses and dividends. If President Obama wants change within the banking industry, he’d better have his representatives sit on the board of directors of these troubled banks, where they can significantly influence compensation policy, dividend policy, and executive personnel decisions. Sadly, his current strategy of “shaming” bank management is as bankrupt as the de facto bank balance sheets.

In the end, I’d like the federal government to restructure these “too big to fail” banks into smaller entities, and then resell the common equity when the markets recover. That is the only rational long-term solution.

By: KC Fed President: failed bank managers gotta go | The Humane Economy

KC Fed President: failed bank managers gotta go | The Humane Economy — Mon, 09 Mar 2009 17:53:17 +0000

[...] consensus for removing failed bank managers seems to be growing. Read the whole thing – it’s really [...]

By: Silverbids.com » Blog Archive » Ingsoc: KC Fed President for Temporary Nationalization

Mon, 09 Mar 2009 01:13:57 +0000

[...] KC Fed President for Temporary Nationalization [...]

By: Top Posts « WordPress.com

Top Posts « WordPress.com — Mon, 09 Mar 2009 00:35:18 +0000

[...] KC Fed President for Temporary Nationalization Nemo alerted me (after in turn being alerted by Calculated Risk) to a recent paper by Thomas Hoenig, president of the [...] [...]

By: Observer

Observer — Sun, 08 Mar 2009 18:42:05 +0000

It’s easy to say let’s nationalize the big banks, but maybe more difficult to admit part of the reason some of them are in trouble is because they took over other failed institutions at the REQUEST of the federal government. JPM’s takeover of BStearns was requested by the government to protect the US economy, likewise BofA’s takeover of MLynch and WellsF’s takeover of Wachovia. If the federal government pulled the strings that got the big banks into trouble by forcing shotgun, weekend mergers…..it seems odd to say that now the federal government should take over the operations of these large banks that they helped to get into this mess.

By: greg

greg — Sun, 08 Mar 2009 18:05:32 +0000

Since the government can legally take over the bank and wipe out the shareholders, why cant the government on, say a Sunday nite, temporarily take over a bank, call it CountyGroup, and strip out the toxic assets, with CountyGroup getting nothing for them (so the govt doesnt have to value and pay for them), then reopen CountyGroup Monday morning with new managment, some capital injection (for which it would get preferred or common shares, whichever is best), and all of its non-toxic assets, deposits and liabilities and with the shareholders of the old CountyGroup each being given the same number of shares in new CountyGroup that they held in old CountyGroup, which can then continue in business as a good bank, or, perhaps, even better, reopen with say, 3 new good banks, A, B and C, with the old shareholders getting equivalent shares in the new banks and everything equally divided into the new banks. The govt then doesnt have to run the banks and there is no nationalization problem as the new management is responsible to the shareholders. The toxic assets, which certainly have some value, are then placed into an entity called, say, CountyGroup Toxic Holdings LLC, owned by the govt, and held and sold over time as the market exists for them. If needed, the govt would guarantee some portion of the existing liabliities of the new banks and the govt would get to keep all the money made from holding and selling the toxic assets as a way of covering the costs and liabilities being assumed by the govt? Is there a legal impediment to doing this that I am missing? Or is there some financial reason why it would not work? In other words, if the problem is valuing and paying for the toxic assets, why not just take them for nothing from the banks that are in trouble because of them and avoiding the problem of paying too much, or too little?

By: Dr. Ramesh

Dr. Ramesh — Sun, 08 Mar 2009 17:34:57 +0000

Most opportune. Temperorary nationalization will give opportunity to cleanify the augean stable in our Banking sector. With regulations in place will make the people in the financial sector accountable and thus the national credit flow will start.

By: Too Big has Failed - Smart Taxes Network

Too Big has Failed - Smart Taxes Network — Sun, 08 Mar 2009 14:04:55 +0000

[...] Posted in the Baseline Scenario [...]

By: M.G. in Progress

M.G. in Progress — Sun, 08 Mar 2009 08:25:27 +0000

What is written is something “obvious” and simple that a lot of economist and bloggers had already written many times. I would be more interested in the part of “bridge banks” as a potential step towards the creation of new good banks. From the head of a Federal Reserve member bank, one would expect more details than those found in the blogsphere. We all appreciate the potential change in direction, although this seems more on approach than in concrete steps towards solution of the problems. A good starting point.

By: TNThorpe

TNThorpe — Sun, 08 Mar 2009 08:10:29 +0000

Sub species aeternitatis all sorts of problems have a different cast, but what you dismiss as mere noises are essential to the banks’ collective future performance.

Replacing management is necessary, though clearly insufficient on its own to turn the crisis around. At Citi and AIG management didn’t just fail, they’ve almost wrecked the global financial system. Time to go.

Shareholders losing money is a consequence of the risk of ownership. It’s not a good outcome, but it’s necessary. Perhaps in the future, shareholders will act more responsibly and demand greater transparency from management.

The final paragraphs slip rather too comfortably into the third person plural, and I dispute that “we the taxpayers” are the same as the “we” in 1 and 2. How is the average American in any way responsible for the lack of gov’t oversight and deregulation mania pursued by ideologically motivated politicians and bureaucrats? I certainly didn’t “participate in the excesses” and most folk I know didn’t.

I agree that reregulation is necessary to generate renewed confidence in the banking system, though for my money I want to hear more of what you call noise first.

By: MethodMan

MethodMan — Sun, 08 Mar 2009 07:14:30 +0000

Here is something to think about.

“No preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another: nor shall vessels bound to, or from, one state, be obliged to enter, clear or pay duties in another.” [US Constitution, Article I, Section 9]

How much federal money has flowed into the fine state of New York in support of its banking commerce? Is that not preference? Wall Street is certainly a port of commerce as even the framers would understand.

If the states weren’t so dependent on the federal government’s printing press, they’d sue under this clause. The union was founded on the principle that no one state could co-opt the federal government so that it directs commercial benefits to itself.

From 10,000 feet it sure looks like New York is doing precisely that.

By: Anony Mousse

Anony Mousse — Sun, 08 Mar 2009 04:18:53 +0000

The cure to this crisis is to lower the cost of life.

Current prices are based on an artificial purchasing power level that was maintained by excessive access to credit in unsustainable proportions to the issuer of said credit. The real purchasing power of Americans is much lower than it was recently, and prices must come down.

Since CEOs had no reason to fear poor performance of the corporations they ran thanks to their golden parachutes, the US economy (and all others like it) were driven by short term profit-making, and the fastest way to make profit on the short term is by flooding the markets with massive amounts of credit. Anything that would be unsustainable can be made sustainable for a longer period of time thanks to massive access to credit.

For example, if you give me $1M in credit, I can spend that $1M in the economy, effectively making people and businesses around me $1M richer. You, as a CEO, have no reason to fear the future impact of poor decisions such as a $1M loan to an individual or a corporation that has low chances of paying it back, because either way you’ll get your bonuses no matter how bad things get.

Pretty damn simple, but nothing is being done about this. Obama and Co., like everyone else, are trying to keep prices high by creating inflation and to force the financial sector to lend as much as it used to, so that ultimately the economy can roll again like it did during the past ten years.

Well though luck, but it won’t work. “Fool me once, shame on you, fool me twice, shame on me.” The whole market will return into a recession once we start to see the economy turn around, in half the time it took to get into this one. Everyone will recognize the signs we now know, and the economy will be unable to turn around for more than a short time.

The only way to get out of this mess for good is to head down where the economy is taking us, but make it a soft landing by putting our money in the right places, mainly: freeing up income for the middle class by all means necessary by lowering the cost of life.

Otherwise we will see inflation in prices, drop in wages and jobs, and crash.