RECEIVERSHIP…. White House Press Secretary Robert Gibbs told reporters today, “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government. That’s been our belief for quite some time, and we continue to have that.”
The number of key officials who’ve reached a different conclusion, however, continues to grow.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) told Bloomberg News that a short-term take-over of Citigroup and Bank of America may be necessary. “I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said. “I’m concerned that we may end up having to do that, at least for a short time.”
Sen. Chuck Schumer (D-N.Y.), who had distanced himself from such an approach as recently as Sunday, told the Huffington Post something similar. Ryan Grim reports that Scheme “believes that failed ‘zombie’ banks, no matter what their size, should be taken over by the government, which should then wipe out shareholders, fire management, clean up the banks and quickly resell them into the marketplace.”
Schumer added, “‘Nationalization’ means many different things to many different people, and somebody needs to clear it up.” Yes, perhaps by using a more specific word.
Please stop using the highly inaccurate term “nationalization” which connotes permanent government takeover of the banks. The correct term is receivership, which is by definition temporary and a routine staple of our capitalist economy and banking regulatory system. Using the term nationalization plays into the propaganda of the far right.
As Atrios summarized, “It isn’t about taking over the banking system permanently, it’s about wiping out the shareholders, temporarily taking control, and either selling off the assets or selling what’s left to another entity.”
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.
And the market caps of these banks did not reflect investors’ assessment of the difference in value between their assets and their liabilities. Instead, it largely — and probably totally — reflected the “Geithner put”, the hope that the feds would bail them out in a way that handed a significant windfall gain to stockholders.
What’s happening now is a growing sense that the federal government, in return for rescuing these institutions, will demand the same thing a private-sector white knight would have demanded — namely, ownership.
