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FINALLY!!!

Submitted by Cahnman on Sun, 03/08/2009 - 17:46
in

John McCain and Richard Shelby come to their senses:

John McCain and Richard Shelby, two high-profile Republican senators, said Sunday that the government should allow a number of the biggest U.S. banks to fail.

"Close them down, get them out of business," Shelby, the senior Republican on the Senate Banking Committee, said on the ABC television program "This Week With George Stephanopoulos." "If they're dead, they ought to be buried."

While the Alabama senator did not say which banks should shut down, he suggested that Citigroup might be on that list, saying the bank has "always been a problem child."

McCain, appearing on "Fox News Sunday," echoed that sentiment without identifying banks. McCain, who lost the U.S. presidential election in November, accused the Treasury Department of avoiding the "hard decision" to let "these banks fail."

All I have to say is, what in sand hill took you people sooooooo long?  Senator McCain, had you said this last September you'd currently be President and Barack Obama would still be some random Senator.

And yes, before the peddlers of haterade chime in, it's called CREATIVE DESTRUCTION.

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I hope it is not too late

Submitted by johnson springs on Sun, 03/08/2009 - 19:26.

As I've written before, the GOP has an opportunity to take the lead in dealing with the banking/financial crisis.

Call it what you will--nationalization, receivership, or bankruptcy--it is the right approach that wipes out the shareholders and management, cleans up the balance sheets and then sells the cleaned up banks to new investors. It can also be very good politics for conservatives and the GOP because it is a positive agenda that will put tremendous pressue on Obama and Geithner, encourage Wall Street and let Main Street know that Republicans are looking out for them.

I hope these sounds we're hearing from McCain and Shelby suggest they are ready to lead.

Is there a difference

Submitted by NextRightNando on Sun, 03/08/2009 - 19:32.

JS - you are a voice of sanity. What is your take - is there a substantial difference between "nationalization" and "letting the banks fail"? I take "nationalization" to mean something not all that different from the FDIC seizure of IndyMac and others. And, therefore, not terribly different from "letting them fail". What do you think?

nationalization means we can't sell them off right away.

Submitted by RisingTide on Mon, 03/09/2009 - 09:52.

means we don't have enough money in the markets, so the gov't appoints someone to run the bank for a bit, until we do.

It's not so different from bankruptcy, but understand that we just can't send all the banks through the bankruptcy process at once -- that would mean full on liquidation, which would liquidate our ENTIRE ECONOMY.

It's kinda silly to hear temporary nationalization as a totally bad thing. It in principle should never be necessary -- the regulators screwed up big during Bush's term... but it's in America's best interest.

I want to see McCain and company talking nationalization. Bankruptcy is impossible here, as no one will buy the bloody banks until they know what is on the books -- and right now the risk is that the books are unstable due to forthcoming foreclosures.

Nationalization = Receivership = Good Bank

Submitted by johnson springs on Mon, 03/09/2009 - 10:43.

Nationalization is an unfortunate term for the bankruptcy process for banks. It is accurate insofar as there is a period of time when the nationalized bank is owned by the government.

While there are a number of different approaches, the FDIC process is a good base case. Typically, the FDIC turns around a bank over the weekend by moving the good assets into a new entity--in the case of IndyMac it was IndyMac Federal--and leaving the bad assets for the original shareholders to pick over. The good bank is back in business on Monday morning and up for sale shortly thereafter. In the case of IndyMac Federal the re-privatization was completed within 3 months IIRC.

An entity like Citibank is an order of magnitude more complex than IndyMac. The FDIC weekend turnaround would not be applicable. Nevertheless, I don't see a route to solvency for the US banking system without forcing the banks to recognize that a significant slice of their assets are indeed bad.

Given that we the taxpayers are going to have to step in to capitalize the new good banks, I would much prefer an approach that wipes out the shareholders and bad management and recoups some funds through a sale rather than what we are doing now which is at best making them whole and at worst throwing our money away.

Willem Buiter and Martin Wolf both of the Financial Times have useful coverage of the options as well as sobering forecasts if there is a failure to act.

I wish the GOP would seize the opportunity for bold action that the Obama/Geithners dithering affords them. Unfortunately, given the fact that it was 40% of the economy since 2002, I think Wall Street exerts enormous influence on politicians of both parties. 

On the bright side, his mishandling of the banking crisis may serve to allay fears that Obama is a shadow Marxist. In this regard at least, he would appear to be just another Wall Street beholden pol.

we elected him because he was less wall street beholden

Submitted by RisingTide on Mon, 03/09/2009 - 10:55.

than anyone else running.

Now? well, johnson springs, what would you do if the people you were trying to regulate had credible means and opportunity to kill your two daughters?

Fighting a caged rat is a bad idea. Obama's trying to find the best strategy, and I pray G-d gives him wisdom to do what we elected him to.

Too Big Has Failed -- KC Fed CEO on bank failure remediation

Submitted by johnson springs on Mon, 03/09/2009 - 14:16.

Just an FYI: Too Big Has Failed

A speech by Thomas Hoenig CEO of the Kansas City Fed that provides a very good overview of receivership/nationalization options and the history of bank failure remedies all in 15 double-spaced pages. Worth a read for anyone interested in the policy side of the question.

 

Nationalization / Receivership

Submitted by Paleo-Skeptic on Mon, 03/09/2009 - 20:00.

How about a good, old-fashioned liquidation of assets.

That is, bankruptcy remains a viable option.

 

if you like riots in the streets

Submitted by RisingTide on Tue, 03/10/2009 - 09:38.

and a full scale liquidation of our entire economy, then yes.

otherwise, you show an astonishing ignorance of elementary banking concepts like commercial paper.

No

Submitted by Paleo-Skeptic on Tue, 03/10/2009 - 19:34.

When one sells, another purchases. 

tell that to the drill bits I own.

Submitted by RisingTide on Wed, 03/11/2009 - 09:43.

it is complete and utter unadulterated bullshit to foresee that the next person in line would continue to issue commercial paper in the same way that the current bank does.

Poisoning the well

Submitted by Paleo-Skeptic on Wed, 03/11/2009 - 21:32.

That is, refusing to see the forest for the trees.

What Aristotle, in Book I of the Topics, refers to as "contentious reasoning."

So, fuck you. 

Do you even understand speculation in commodities?

Submitted by RisingTide on Thu, 03/12/2009 - 08:41.

it is the act of buying things, in the hopes that their price goes up in the future. While these are held by the speculator, they are not in productive use by the economy.

If you liquidate banks, it is likely that most of the properties will be bought by speculators, as other banks can't be found to buy out the toxic assets.