In 1940, W.C. Fields released one of his biggest hit movies, “The Bank Dick.” Lest you titter, Wikipedia helpfully explains that “[a]t the time, dick was common USA slang for detective.”
Today, of course, “dick” is slang for something else. But recently, the news has been full of “bank dicks” that meet the 2009 understanding of the term. Just in the last few days we’ve heard about banks receiving many millions of dollars of taxpayer money and using it to buy corporate jets, to cover accelerated bonuses, and to pay down their own debts. When the best thing you can say about the federal bailout is that it seems to have allowed a merger between two enormous pharmaceutical companies to go forward, probably at the cost of several thousand American jobs, you know you’ve got trouble.
I’m not knowledgeable enough about financial markets to know what the solution is. But what we’ve been doing so far — asking taxpayers to pick up the tab for lousy behavior — surely isn’t it.
No more bank dicks.
but the 1940 film involves “borrowing” money from the vault to make craptacular investments, so it’s perhaps more applicable than just the change of phrase.
So freaking easy.
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p>Nationalize.
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p>Nationalize.
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p>Nationalize.
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p>The banks have had their chance and failed. They continue to Fail. And fail. And fail. This, despite our best efforts, which include the government lending out at nearly 0%, taxing these troubled companies at nearly 0% and giving them well over a trillion dollars. Enough is enough.
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p>I’m sure there could be regulations that could be written that would make the banks do what we need them to do, but I a) don’t trust congress to write those regulations and b) don’t think our economy has the time to do it. Nationalize the banks, make them work for us, fix their solvency issues, get them lending money to the people we want them lending money, prevent them from lending money out to corporations that simply want to use them to gobble other corporations up and, as the banks become healthier, start to sell them in pieces, ensuring we don’t have any banks that are “too big to fail.”
You don’t trust congress to write regulations, but you do trust them to take over the banks entirely?
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p>How does that work?
Obama issues an executive order seizing the banks, invoking the powers vested in the President by the Constitution and laws of the United States.
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p>An oval office dialogue is reported when President Obama is informed that the seizure may be unconstitutional:
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p>”I don’t give a goddamn,” Obama responds. “I’m the President and the Commander-in-Chief. Do it my way.”
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p>”Mr. President,” one aide in the meeting says. “There is a valid case that the provisions in this law undermine the Constitution.”
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p>”Stop throwing the Constitution in my face,” Obama screams back. ‘It’s just a goddamned piece of paper!'”
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p>…and there you have it. Nationalized banks, deja vu.
The executive branch generally does, well, you know, executive sorts of things.
Be mindful that in order to “nationalize” a bank as has happened at various times in the US when banks fail, it must be pursuant to existing law, which, more or less, requires that the bank be found to be “unsafe or unsound” condition. Upon which, the FDIC can step in and take broad actions pursuant to the Federal Deposit Insurance Act. The FDIC is an independent agency run by its 5 person Board of directors, appointed for 5 year terms.
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p>If, however, Ryan is proposed that the banks be nationlized via executive order, it’d go like this:
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p>Preceding President Obama’s sweeping executive order, he’ll be apprised of the existance of WMD (Worthless Money Deposits) in many of the 8000 banks in the US, and would immediately seek permission from Congress.
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p>Pelosi: “Bank Ameria has been engaged in the development of Worthess Money Deposits, and they are a threat to countries in the region. It has made a mockery of the regulation process.” Senator John Kerry would demur before he didn’t, then claim not to have.
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p>Banks would resist. After all, nationalization is a taking of property from private citizens.
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p>”My answer is bring ’em on.” President Obama would be quoted as saying. And to the shortage of competent government employees to oversee the clusterfuck, Joe Biden just shrugged, “as you know, you nationalize banks with the FDIC you have, not the FDIC you might want or wish to have at a later time.”
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p>As to the few remaining private banks, littered here and there, he’d say “I think they’re in the last throes, if you will, of the insurgency.”
Really, it was just a round about way to say that the only way to nationalize BAC or Citibank is via a messy Executive order, given Ryan’s contraint that he didn’t think Congress ought be involved. As I see it there are 4 ways to nationalize:
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p>1: FDIC. It’s not likely that the FDIC will, pursuant to its charter and the Federal Deposit Insurance Act will take over BAC and Citibank. They don’t have i) the resources ii) the precedent iii) BAC and Citibank aren’t “unsafe or unsound” according to FDIC standards.
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p>2: Courts. Someone with standing could file for injuctive relief seeking for the Federal Courts or the FDIC to take over the Banks. That’s unprecedented and I can’t imagine the Federal Court undertaking to do what the FDIC or Congress won’t. Courts weren’t very keen on giving Truman the power to nationalize the steel mills.
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p>3: Congressional action. Ryan said no to that choice.
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p>4: Executive order. That’s all that left. The President issues an order pursuant to power given him under the Constitution.
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p>So in response to “nationalize, nationalize, nationalize”. How?
It’s a lot of cash, but doesn’t it effectively nationalize, if the majority shareholder then exercises its power to dump the current board and management?
Makes sense, but avoids the question. Who, if not Congress because Ryan hates Congress, buys 51%? Presidential order?
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p>And, it introduces another question: how much to pay for 51%. If I’m a shareholder I’m going to hold out, knowing that the government is after a controlling interest. There’d definitely be a sharp price run up.
It could go a couple of ways. (1) Congress could essentially re-enact the initial Paulson plan — “hey Mr. Prez, here’s a kajillion dollars. Knock yourself out — we trust ya.” That, I gather, is Ryan’s preferred approach. (2) Congress could authorize the expenditure of a kajillion dollars, but on carefully spelled out conditions that set forth exactly how the feds are to manage the bank. (3) Something in between — Congress authorizes the money, and sets some requirements, but delegates others to the Treasury (or whoever is managing things). That’s probably the most likely route, but it could end up anywhere.
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p>Interesting point about the price. I don’t know enough about the markets to have anything intelligent to say on that.
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p>Stock prices would only matter if the government bought them outright. That’s not the same as nationalizing them. I suppose the govmnt could buy enough shares to call a stockholders meeting and vote out the leadership and install their own leadership. Nationalizing just does this by fiat and would either wipe out stocks completely or (as happened last Sept with Fannie and Freddie) dilute them severely under some ‘conservatorship’.
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p>That’s why bank stocks have been taking a pounding lately: people are trying to get out of them in a tearing hurry. If and when nationalizing occurs, they’ll be, at best, significantly lower than they are even now, or be wiped out completely. If they continue to tank, nationalizing might become inevitable.
I think it all depends on how any nationalization occurs. No question, if they are taken control of by FDIC it’s because they’ve failed and are operating at or near insolvency, and can’t meet depositor demands. In that case the market would drive the price to zero. aka Continental Illinois.
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p>The point I addressed is the advocacy that the US should nationalize BAC and Citi because they aren’t behaving as some want them to behave.
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p>If the political notion of nationalizing them to make them lend gained traction (which I don’t think it will, so the whole thought is hypothetical), it seems that shareholders would perceive additional value to the buying Government and resist selling, thereby driving the price up.
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p>A fair point.
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p>Little bit of a razors edge there… without clear indications what form the nationalization would take, the skittish market would most likely (methinks) dump stock than make the effort to perceive the value.
… the devil is in the details. That’s why the world really needs to appreciate professional regulatory technocrat wonks more.
our ability to write sensible regulations because of lobbyists and special interests. If we nationalize the banks, we a) severely reduce the power of that lobby and b) put people in control of the banks who aren’t partisans who can be bought by those lobbyists.
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p>Plus, there’s plenty of examples of companies (especially banks) that have been nationalized and later sold reasonably, responsibly and at a profit.
Yes, we still have the same people running the show in government. People with different views are ignored. It isn’t that the economic problems came out of nowhere. A friend at a well known Boston investment firm told me he and his peers thought the bubble would burst with a vengeance quite a few years ago. Another friend, a banker, retired several years ago. At the time he told me that the new bank regulation designed to give credit to practically anyone would bring the banks to their knees. Both these people were right. I’m sure a lot more people were aware of the situation.
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p>This, as in the last administration, appoints the architects of the failure to resolve the problem. The politicians that aided and abetted the collapse are still in office. So the names change but the players are from the same lot.
… who watch the markets have been so good at prognosticating the problems we face, we really should give more thought to their views…. oh wait.
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p>Not speaking for Ryan, but just for myself: It seems to me that nationalizing the banks would be a short term solution that would require an ‘exit strategy’ involving clearing up a lot of stuff and then selling back the banks and moving to a much more tighter regulatory framework.
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p>There aren’t any regulations that could be written and implemented in time to have sufficient effect: that is to say, to stave off complete collapse.
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… there also needs to be a psychological exit strategy from the moral hazard of ‘don’t worry,… just get nationalized when things get tough’ example.
Ryan — there are more than 8,500 banks in the United States and more than 8,000 credit unions. So we’re talking about more than 16,000 private businesses, the vast majority of which are in decent shape. I hope when you talk nationalization that you’re really only talking about a few of the largest institutions.
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p>And to nationalize one of the largest banks, it would take billions more in federal money — far more than we’ve invested already. The federal government has put about $25 billion into Bank of America. That’s equal to about 6 percent of the outstanding stock. Sure, the feds are the largest shareholder, but to buy out the remaining 94 percent of the stockholders, even at pennies on the dollar would be extremely expensive.
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p>I actually like the “bad bank” idea that similar to the Resolution Trust Company of the early 1990s. Buy up the bad assets at a discount then turn around, unwind some of the unworkable deals, and then sell them. The banks take a hit on the sale price, and the government most likely makes money on the eventual sale of the assets.
I’m not talking about every bank. If I were, I would have said every bank.
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p>Am I talking about Citibank? You bet your ass. Bank of America? Sure.
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p>How much will it cost? Well, we’ll surely have to infuse cash into it, but at the end of the day it will cost nothing. In fact, as has been shown again and again and again, we will earn a profit. We’ll do so after we return those companies into profitability and make them work for this county, selling the assets into smaller companies that aren’t too big to fail.
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p>Don’t get me wrong, I don’t want to nationalize banks – I just think that it’s inevitable. The waste and money we’ll never see again is this bailout cash and any other crazy “voo-doo” schemes, as Krugman calls them, to avoid nationalization. You know what money we’ll never see again, for example? The $50 million Citibank just spent for a 12-passenger luxury jet, right after their newest, boldest bailout.
The strings Congress puts on this bailout money should ensure it is going to help working people and not going to pay off banker’s debts amd buy more corporate jets. The money definitely should not be going to pay these idiots bonuses and give them raises.
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p>Greedy bankers! That’s why we have bank dicks, regulators.
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p>”The Bank Dick.” Shouldn’t the FCC havve swarmed on this one.
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p>Oh, we had a president named Dick in the the late 60s and early 70s.
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p>Long live Dick!
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Your comments all have about the same structure. One small paragraph leads into three one-liners and concludes with a slogan. The slogan always seems very Mao-like.
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p>We might even give them a form. We could call them Peabodies, maybe. We could have contests where we compete for copies of Bob’s next book to see who can write the best one.
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p>May peabody prosper!
Our own Peabodies will no doubt compare favorably in prestige to the other Peabodies.
I am flattered by being in the company of the Simpsons and Captain Kangaroo.
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p>As to Mao, I’ve never been a fan. (cough, cough) Any similarity is purely coincidental.
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p>I have a sense of humur. Mao, I’m told, lacked levity!
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My certificate from SECDEF Cohen for serving the nation in the Foreign Service during the Cold War should allay your concerns.
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p>I hope!?! 😉
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than to support this bailout.
Citizens knew that the same people that brought on the crisis were the ones solving the problem. Goldman Sachs rules America through their legislative stooges in the senate and house and executive. Still, citizens, as sheep to the slaughter, go through their motions. After all, the media told the citizens that they needed the bailout (and quick!).
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p>The looters will win. The next generation will be born as debt slaves.
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p>Who is to stop them? Our one hope nominated a high-powered Dianne Wilkerson for SECTREAS.
clearly, you don’t remember the polling. A large majority of the country was against the bailout before, during and after it happened. Revisionist history isn’t history.
And Chris Dodd and Barney Frank share the blame in not insisting on rigorous oversight
The politics of TARP are and were particularly toxic. It’s as if we’re playing a gigantic game of Prisoner’s Dilemna with the economic system. If we have bank runs and bank failures, we are in for a very bad decade. On the other hand the optics are terrible. Generally we think of giving money to those who are deserving, to reward good behavior or rescue the innocent from misfortune. The behavior of the Wall Street bank-like entities qualifies as neither good nor innocent. So politicians who do good will get tiny rewards — maybe; politicians who do bad might get big rewards. If enough politicians do bad, we all get a huge penalty.
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p>Add to that: Populist liberals and committed libertarians oppose bailouts on principle.
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p>This situation paints a giant target on the back of any legislator who tries to do right. It makes it very, very tempting to be “bipartisan”.
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p>During the Administration-We-Can-Blame-For-Everything, I think that meant agreeing to some really bad stuff.
The millionaires got the bulk of this TARP money and used to enrich themselves. A robust 40% margin rate on income over $1 million should go a long way toward getting this back.
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p>Oh, and take away the Cayman Island shelters.
i wanna watch this one!!!
I don’t have data from the US but the local banks in my area are boasting how solid their positions are. My local credit union has not had a single foreclosure and are competitive on just about any service the big banks offer. Why should we nationalize these financial institutions?
A credit union is not, actually, a bank. They are regulated differently (better? more closely?) and operate under different rules. Since credit unions are owned by the depositors it’s A) nearly technically impossible for a credit union to become ‘too big to fail’ and 2) perform significant intra-bank lending. So this is a case of apples and oranges.
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p>Local (small) banks, if wisely served, ought to do well enough to survive and, if lucky, thrive. They are small enough, and provided they were capitalized adequately at the start can continue to do nominal business. Expansion is probably right out, however.
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p>If you want an analogy think of a tsunami: the credit unions and small banks are ships at sea who feel the swell up and the drop down as the tsunami passes underneath them; large banks are the land masses with no ability to either get out of the way or push back and thus are devastated. At some point, however, the ships at sea have to come back to shore… and, in this analogy, it’s unclear when shore is going to be safe enough to land…
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