To Nationalize or Not To Nationalize?

by Dave on February 20, 2009

Barry Ritholtz has posted a nice collection of links from different sources arguing for or against bank nationalization.   To reiterate my previous post, I’m more concerned about how something like this gets executed and whether or not government can make a clean exit.

I think that it is worth the time reading through the various articles.  I’ve spent a lot of time over there over the last few months and it’s certainly helped me navigate through a lot of the bigger picture (no pun intended) issues.   Also, it’s his fault (in a good way) that I’ve become so impatient with certain dead-horse arguments about the financial crisis.  Be warned.

Anyway, please welcome Barry to the League and read what he has to say.

{ 6 comments }

1 E.D. Kain February 20, 2009 at 4:45 pm

Dave:

To reiterate my previous post, I’m more concerned about how something like this gets executed and whether or not government can make a clean exit.

That just reminded me of Iraq for reasons unknown…

2 Bob February 20, 2009 at 8:22 pm

Regarding nationalization Paul Krugmam writes, “We are not talking about fears that leftist radicals will expropriate perfectly good private companies. At least since last fall the major banks — certainly Citi and B of A — have only been able to stay in business because their counterparties believe that there’s an implicit federal guarantee on their obligations. The banks are already, in a fundamental sense, wards of the state.”

3 Dave February 20, 2009 at 8:53 pm

Bob,

Duly noted. I don’t recall anyone wondering about leftist radicals hijacking the private sector but I tend to avoid much of the conservative pundit crowd so I wonder if Krugman is invoking a strawman, even if his main argument has some merit.

That said, I think there could be a difference between a fundamental federal guarantee and nationalization. In a nationalization, I would have to think that the value of the common equity goes to zero (not that I like nationalization per se, but if it does happen, shareholders should be wiped out). I don’t know what happens to the bondholders although I suspect they could face the same fate.

E.D.,

Your nihilism is putting a strain on our friendship. We should talk at some point.

4 Dave February 20, 2009 at 9:01 pm

I just noticed this…

http://www.businessweek.com/ap/financialnews/D96FDUU00.htm?campaign_id=bwdaily_related

Interesting…

5 Bob February 20, 2009 at 9:17 pm

Dave, I just passed the Krugman thing along. Thought it interesting. Yeah, City and BofA hurting. I’m betting on nationalism of the big ones. But not betting much, otherwise another shift at Burger King. Ouch!

6 Bob February 21, 2009 at 12:09 am

Dave, speaking of ‘leftist raricals,” oh, for example Obama. Lou Dobbs, CNN, just had tape of President Obama and the caption, “Road to Socialism?” Yeah, on the issue of bank nationalism. So much for Prof. Krugman’s “strawman.”

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