At the risk of drawing the ire of fellow readers let me say that I, for one, would be willing to pay for this. I find the commentary provided You and Simon to be extremely valuable.

Keep up the good work.

SKIP TO SECTION V (YOU PROBABLY ALREADY KNOW I-IV, AND IT IS NOT LIKE YOU DIDN’T KNOW THIS TOO, BUT MAYBE SOMEONE OUT THERE CAN PUT AN END TO THIS–WHERE IS ANDREW JACKSON WHEN YOU NEED HIM!!!

Re Treasury, I think they’re neither stupid nor naive.
If you start from the premise that Treasury is working in the interest of the American people/taxpayer, then yeah, the only explanation for their actions is stupidity/naiveté.
But if you start from the premise that the boys and girls currently at Treasury are the same ones who were yesterday at these private financial institutions and that they’re intimately linked with the boys and girls currently in the private sector and that they’re all part of one big family, then it becomes immediately obvious why some members of the family won’t do anything to hurt the other members of the family. It’s not stupidity, it’s self interest.

I just heard someone said that Elizabeth Warren, chair of the Congressional Oversight Panel, went on TV and said, please someone, anyone give us a plan.

I am sure you both would get together the rationale for all of the ideas that are fair, and balanced and designed to “do no harm” yet also, account for the fact that people/companies did take risks and they lost their bet, and the taxpayer doesn’t need to pay the risktakers bill….

This is a tall order request, but would you please consider a huge dissertation to offer Elizabeth Warren which not only offers a plan on every angle from what to do about the banking crisis, to what needs to be outlawed and changed adn why, and with each point on your list, please adress the very crafty, clever people who will want their agenda and free money plans to continue forward? If you address all issues on the basis of knowing who the critics are, then it will go a long way in helping the plan have credibility.

In the fall of 2007, i became completely frustrated that i wasnt a practicing CPA, Lawyer and economist because the proper, fair, and just way to approach our banking and investment banking problems rests on a fair, just, non-self dealing solution which involves extreme understanding of all of these disciplines.

I see what has happened is our country has become a GROUPTHINKTHINKTANK where very selfdealing plans have been executed, and now, we are at the TIPPING POINT (to use your term), because our country’s solvency, our currency’s reputaion and indeed our national security depends on a justice being done in retrospect and going forward.

Anyone who wants to say we have to move forward is forclosing upon the United States citizens’ ability to trust because MUCH was done over the last year, that was self-dealing, and this has to stop….even the public/private partnership is another scandle–money needs to be preserved for the real disasters that are going to occur from our country being weakened by the power of the criminal irresponsiblity that has been allowed to seem like business (financial) as usual.

It may take a CPA/LAWYER/ECONOMIST to articulate what is wrong, the gut of the people will always sense the truth, and they always know something is wrong. OUT GUT IS SO SICK FROM ALL OF THE SELFDEALING THAT IT MAY NEVER RECOVER.

There has to be a cure to the sick gut, and the cure comes from goodness, a plan designed by someone or a group of people ) who must be good in every way…i see goodness in your views although i know that your critics want to say you are acting on conflicts…but anyone can do that, and i trust that you are not doing that. The shareholders of the banks and other companies that led these companies into the EVIL HELLISH CESSPOOL should look to Sarbanes-Oxley, and their own legal action to correct their damages. By the government covering up the whole mess and passing money t0 the organizations that have greatly violated their responsibilities towards the shareholders, it has thwarted any kind of process that our legal system could have allowed shareholders to have–like a bait and switch on the conciousness of the shareholders.

Please as part of your plan, offer options for the shareholders as well and leave as few stones unturned as possible.

I am so sorry to ask this of you both, but i believe that the two of you, with your colleagues may actually save our country from what could happen if the universally destructive train that is rolling doesn’t stop.

Peace, courage, and strength be with you.

I take a pragmatic view to the current debate. To be fair, I think we should all agree that the question of nationalization vs. not nationalization is not obvious. There are many heavy weights in business, academia and government debating this. To be honest, anyone who feels this stuff is obvious probably didn’t listen enough to the other side’s argument.

With the above in mind, no matter which solutions we go with there is significant chance that the solution doesn’t work well. However, we do know that once we go down the nationalization route, there is no recourse if it blows up. With the Geitner plan, we can try again with nationalization.

To my point above, one can argue that we’ve successfully employed nationalization in the past with insolvent banks in developing countries and with Japan in the 90s. Here is why I think it is a fallacy.

To begin with, it is not clear that most banks are really insolvent (including Citibank). Here are some very good analysis and supporting information.

http://brontecapital.blogspot.com/2009/02/bank-solvency-and-geithner-plan.html?showComment=1234834560000

I suspect the poor financial health of US banks has been exaggerated. To be sure, US banks are in bad shape but as a whole it is not as bad as people think.

http://brontecapital.blogspot.com/2009/01/voodoo-maths-and-dead-banks.html

Here is an analysis of Bank of America’s quarterly number

http://brontecapital.blogspot.com/2009/02/series-of-quarterly-numbers.html

The view that most US banks have significant positive cash flow and will recover on their own in a few years is collaborated by Warren Buffet during his CNBC interview:

“I mean, the banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they’re doing is terrific. They will earn their way out of it, in most cases, overwhelming number of cases.” – Warrant Buffet

http://www.cnbc.com/id/29595537/page/2/

Banks’ positive cash flow is also supported by today’s steep interest rate yield spread. This explains why many banks are so bold as to declare they don’t need bail out from the government.

Also keep in mind that US has always had more stringent banking requirement than most of the world. I don’t think a failing bank in a developing country or even a failing Japanese bank in the 90s can compare to the situation most US banks are in today. However, I am not an authority here and I stand to be corrected.

Will cleaning up banks balance sheet improve lending? The obvious reason banks are not lending is they are in poor financial health.

However, there is another very important reason and that is the falling asset price. Banks loans are being collateralized by falling assets; as such banks has to pass on the risk to the borrower in higher cost and more stringent lending standards. The Fed’s action last week and Geitner’s plan all provide direct support for asset price.

Nationalization in itself doesn’t stop falling asset price. At least I don’t see how.

Thanks,
Ben

P.S. I have not affiliated with John Hempton and brontecapital. I am a big fan of his in depth analysis.

2. Limiting losses to 100% of your investment is a guarantee. It gives you unlimited and juiced-up upside, due to the leverage, without the risk of going negative, which you ordinarily get with leverage.