Most of all, I don't know anyone that thinks we can, or should, avoid nationalizing the banks having the FDIC "seize" the big insolvent banks (like Citibank and B of A,) clear out their bad assets, break them up and sell them off as many smaller regional banks. We should just bite the bullet and do it.

Fixed. For some reason the word "nationalize" scares the hell out of everyone. The FDIC has been natoionalizing small banks left and right as they are deemed insolvent, but they call it "seizing" instead of "nationalizing." No one seems to have a problem with that.

Or break the banks up. There are plenty of small banks doing quite well. Much of our problem is these banks have become too big to fail.

Also there is something wrong with mark to market accounting rules. I don't fully understand it and I don't know the fix but assuming you (and everyone else) would sell off all your assets at once when valuing them falsely factors the depressed value that oversupply would create. Banks have many nicely performing loans on their books, creating nice and expected cash flow, that they've had to mark down just because current market selling prices are no longer aligned with the size of the loan.

I get why mark to market was created and agree with the need, but it does seem something closer to waiting for a loan to actually default before writing it down is needed. Banks and all businesses operate on the cash flow they create.

But I'm not an accountant and I didn't even stay in a Holiday Inn Express last night.

I think Geithner has been a major disappointment to date.  This seems far too ill considered and cautious.  We saw how the market responded yesterday.  It lost about 4-5 % of its value, mostly in the financial sector.  I think investors don't like the way the administration's economic plan is being rolled out.  It's not inspiring that critical component we need right now -- confidence.

A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward. Franklin D. Roosevelt

Any plan that actually fixes the banks must by definition be an overt admission that our entire financial system is fundamentally insolvent.

Obama will never admit as such until this admission is forced out of him by the near-collapse of said system.

Ergo, up to $2.5 trillion in the denial continues, but we can't spare a few bucks for Head Start.

Fiddling while it all burns.

More at Zandar vs. The Stupid.

Let`s pretend I`m an idiot, or that I really am an idiot.
Is it wrong for me to ask, where does all the billions of dollars already paid out & forthcoming, go.
Is it shrink wrapped in pallets & delivered.
I remember how many pallets of 100`s were shipped to Iraq, at the end of Bremmer`s fiasco. Many cargo planes full.
That was for a measly dozen or so billion.
The numbers are so big that it seems we`ve been slowly brain washed into thinking the numbers are correct.
Theskyisfallingweneedthecashrightnoworcatastrophywillbeheretomorrowtotakeawayyourchildren fear similar to Bushco`s, seems like more of the same to me.
No one could have envisioned those numbers 8 years ago, so why now are all the experts in long term money & economic forecasting so right. If they are correct now, they screwed up & they need to be fired, removed, thrown in jail etc., If they are wrong now, & the record points that way, nothing they advocate is going to fix the problem. So why is anybody even listening to these failures.

The difference between theists and atheists is that the atheists don't set the theists on fire for refusing to agree with them.

Agree. "Seize" failing banks.

Agree. Geithner's plan too vague, probably too conservative to fix the mess.

But I think we need to disconnect from the "wisdom of Wall Street." The market will go up and down and trying to connect what is good or bad for America with how stocks rise or fall is just not a wise thing to do. A couple days ago the market went up when the government announced how many people were laid off last month.

Just saying.

plenty of opinions to go around on whether Geithner failed.

My 2 cents: Obama is in too much of a rush to show he's on the job. Haste makes waste.
But I can understand the rush. We. are. in. a. GREAT. an EPIC DEPRESSION. The mother of all depressions past and future.

Reax to Geithner from the financial street:

On Bloomberg, Allianz' Miller -- "Geithner had to be intentionally vague." (video still up at Bloomberg.com)

Krugman:

The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.

[.]

read the rest

~~~

Kenneth Rogoff: a  former chief economist at the International Monetary Fund who's now a professor at Harvard:

"Tim Geithner did a great job in painting the broad strokes of the problem and laying out general principles, but it was a big disappointment not to have more details," Rogoff said.

Rogoff also said Geithner missed an opportunity to send a stronger signal distinguishing his approach from Paulson's: " I would have liked to see President Obama standing behind the Treasury secretary, considering this speech, more than anything else, was supposed to lay out the policies signaling a decisive break from the past."

I agree with Zander1's comments upthread. Until Obama-Bernanke-Geithner come clean and admit to the $1.273 quadrillion anchor -{$683 trillion of OTC derivatives, and the $590 trillion of CDS derivatives, U.S. origin} - this depression will last 30 years.

The illusion of prosperity was built on debt and bets - aka insured loans - by private treaty. I made a bet on BooMan's bet. ...(in other words I insured BooMan's bet)... which was; BooMan made a bet that Steven D's pet would pay up Zandar1's loans. Next enter the geniuses who made the computer models, bundling all our bets into AAA rated bonds, assuring that all would go well. Excluded was the critical factoid, we are not in the land of the Wizard of Oz. You see Zandar1 had a financial mishap. Steven D does not own a pet. BooMan had a slip on the keyboard. And me? I'm waiting for uncle Benny to milk my cows.

It's the debt and bets stupid!  All make believe.

Well, "You can't vote for war and disown the results"

By "anyone", do you mean bloggers, economists, ordinary people?

Have there been discussion on how to sell nationalization to Congress and to the American people? If we want Obama and Geithner to do this, we should be willing to help them in selling it. And in a democracy, yes it does need to be sold to both Congress and the public.

That is the aspect of the nationalization "debate" that mystifies me. It seems to be taking place in a bubble and has not yet really addressed the politics of such a course of action.

While I don't know very much about the details, I assume that nationalization would require more than the $350 billion left in TARP so that the Administration would need to go back to Congress to get more money to carry it out. That's when having support in Congress and the public will be needed and I don't see any evidence that this exists currently nor, as I said, any discussion of how to get there.

Agreed, Geithner should've waited until he could offer something truly substantial before he made a statement.

However, urgency compelled him to come out with something -- likely in the interest of shaping  the political narrative against GOP obstructionism.

He should resign today or be dismissed by the end of the week. This is totally unacceptable.

As for the banks themselves, start by taking them over, firing the management, chop the shareholders off, clean them up, then sell them out. Anything else is a waste of time.


Recommended by Hideo Kojima

Most of all, I don't know anyone that thinks we can, or should, avoid nationalizing the banks.

Well, there's Geithner for starters.  Obama seems to think we should avoid it.  Most of Congress.  The entire Republican party.  Probably about 90% or so of Democratic politicians.  Most of the "analysts" who are allowed to have a microphone on the talking head shows.  And I haven't seen any polling, but I wouldn't be surprised if it polled really poorly in general because of that word "nationalize".

The smart technocratic types think it's a good idea, and that's about all I've been hearing on the "pro" side of things.  It could be sold as a populist idea, but it hasn't been, and the folks who could do the selling have a vested interest in not nationalizing the banks.

I actually think it will end up happening because it will be inevitable at some point.  The more I look into Geithner's "plan", the more it looks like a long-shot Hail Mary pass to let the free market have "one more chance" to "bail itself out" (with massive public assistance, of course).  I don't think it's going to work - mostly because I don't think Geithner's going to be able to sweeten the pot enough to attract private investors without generating a massive, massive backlash from the hordes wielding torches and pitchforks and demanding his head.  I think there's also a chance that when the government actually gets to look at those books, it's going to be a shock at how bad things really are and just how stupidly overinflated the banks have made this mess.

But when it fails we'll be in a situation where the only radical action will succeed - the stupid bankers keep getting their buddies in the Treasury to punt these things down the road and it's only making things worse.  At that point the question will be whether we have any money left to fix the problem, considering how much has been pissed away because of the religious belief in phoney "free market" doctrine.  Worst case scenario is that all of the giant banks fail completely, and the Fed has to step in and take over the roles that the private giant banks were performing.  Like I said - stupid bankers punting down the field will only make things worse for themselves in the long run.

In order to avoid the big scary word nationalization, I have read "Bank Receivership" or "preprivatization" as other options to use.

It is mind boggling that we are going to rip through trillions of dollars because we are brainwashed to hating the word "nationalization" even though by definition we already pretty much own most of the financial systems already.

This comment from the News Hour discussion last night really illustrates my concern.

KENNETH ROGOFF: Well, I agree with what Paul said. I mean, they're going to look at the books and go, "Oh, my gosh, look how deep the hole is. It's a couple trillion dollars," if we're realistic.

And the question is, what are they going to do? How much are the taxpayers going to go in? I think we do need some form of receivership, FDIC workout, call it nationalization, to try to clean up the banks and re-privatize them.

I worry that, if they're not planning to do that pretty quickly, we're going to be a year from now, we're going to have spent the stimulus money without having the banking system jump-started at the same time, we're going to have spent a lot of this money -- which could end up trillions, really -- on the banking system, and we're not going to have got things going.

I think they need to move decisively soon and not just sit on this. Hopefully what Paul said is right. This is a stocking horse; they're going to do it. But I would have liked to see something much more decisive now.

http://www.pbs.org/newshour/bb/business/jan-june09/stimulusrescue_02-10.html

Blue Tidal Wave

The problem with Sec. Treasury presentation was that he didn't act like the Bankers Mother. "Oh you poor banker and wall street, did you have boobo and hurt yourself with too many credit-default swaps and too much leverage. Don't worry about your trillions of dollars in lost, I'm here to solve all your problems." Get a sec.Treasury to say that and the Bankers will find the plan to be specific enough.

Booman: " Most of all, I don't know anyone that thinks we can, or should, avoid nationalizing the banks. "

Obama: "...the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America's different."

Actually if you meant CAN instead of CAN'T in the first sentence you kind of agree with him.

I saw, via Matt Yglesias a summary of Obama's answer to Terry Moran's question in which he discussed the Swedish solution.  I agree with Matt that Obama didn't give a particularly good answer as to why we can't do it. But I notice that Obama raised, in some ways, the same questions I raised here at BT as to the number of banks that Sweden had to deal with compared to the number of banks here.  This leads me to believe that the administration is looking closely at this issue and trying to figure out how to work around these issues in the event de facto nationalization occurs.