Comments on: Three Reasons Bank Nationalization Will Keep Investors Awake at Night

By: A Look at Liquidity: The Real Reason Banks Aren’t Lending

A Look at Liquidity: The Real Reason Banks Aren’t Lending — Thu, 23 Apr 2009 10:10:46 +0000

[...] Money Morning: Three Reasons Bank Nationalization Will Keep Investors Awake at Night. [...]

By: When the Going Gets Tough, Bank on Canada's Banks

When the Going Gets Tough, Bank on Canada's Banks — Wed, 04 Mar 2009 13:00:44 +0000

[...] Money Morning: Three Reasons Bank Nationalization Will Keep Investors Awake at Night [...]

By: Record Job Losses to Continue

Record Job Losses to Continue — Mon, 02 Mar 2009 18:04:17 +0000

[...] Meanwhile, the government announced some details of “stress tests” that will be used to measure how banks needing addition…. [...]

By: shaiby

shaiby — Sat, 28 Feb 2009 10:09:15 +0000

i want something on the economic situation of pakistan…. i believe that banks in banking sector in pakistan is not as affected as the banking sector in countries like US or European….

By: martin s

martin s — Fri, 27 Feb 2009 23:01:09 +0000

use the capitolization system instead of socialization .allow the banks to sell more stock and bonds with no taxation of the interest and dividends for 5 years. This would enclurage investors to put up their money instead of the govt.
allow a larger write off from taxes each year instead of the measly 3,000 carry over . This would allow investors to swallow their losses instead of selling the stocks they have gains in to offset theirl losses .Selling the winners at this time will only drive the market lower.

By: John H. Adams

John H. Adams — Fri, 27 Feb 2009 22:54:33 +0000

This article makes several incorrect assumptions.

One of the fundamentally incorrect assumptions it makes is that market forces can produce a healthy market. The so-called “credit crisis” clearly shows that this is not true. All that market forces produced was a den of thieves. The great economic thinker, Karl Polanyi, has observed over 50 years ago that SOCIETY MUST CONTROL MARKETS and MARKETS MUST NOT BE ALLOWED TO CONTROL SOCIETIES. The government is the representative of society and it must act to control markets effectively.

When banks have been found to be nothing but a den of thieves, then it is necessary for governments to step in and take control in order to clean them up. One approach to clean them up and put them on a good footing may be nationalization. Another approach will be to introduce more effective regulations. Regardless of the approach, the government needs to intervene in order to protect members of society.

If the government takes the nationalization approach, it may gradually withdraw from direct involvement and allow private organizations to take control. Once it has done this, it still has to enforce all the regulations diligently as the representative of society.

Finally, it must be remembered that members of society have to eternally vigilant to ensure that corrupt or incompetent government officials do not create or allow to be created yet another den of thieves. It is ultimately the responsibility of members of society to ensure that their government does its job properly.. This cannot happen if members of society think that once they have elected a government their job is done and they can go back to watching their favourite game on TV along with mindless consumption of beer and potato chips.

It has been said that the price of liberty is eternal vigilance. In the same vein, the price of financial security is also eternal vigilance and activism.

Merely criticising nationalization does not serve any useful purpose. It merely helps to further selfish and vested interests that, as has been shown clearly by the recent “credit crisis”, only result in causing great suffering to many.

Sincerely,

John H. Adams

By: Bill

Bill — Fri, 27 Feb 2009 21:02:45 +0000

Another consideration regarding bank nationalization would be that the government will decide what loans are made. The same government who controls and manages the postal service, social security, Fannie Mae, Freddie Mac, Medicare, and Medicaid – all stellar successes – will determine who will get the loans to make cloths, shoes, cars, houses, software, food, and virtually everything we buy. Your choices will diminish, and your opinion will have less value. Free open market competition will end. You will be told what you like and want, not by advertising, but rather by availability as chosen by your government. In the future, to get a loan, you could have to donate to a federal representative’s election campaign. And you thought things were changing.

By: Monte

Monte — Fri, 27 Feb 2009 18:08:33 +0000

My Dear Martin,

I can’t help but wonder if this problem would exist if an “eccentric” like Dr. Paul had become president. We are now in an extra-constitutional period that promises not yet realized horrors for us all. Perhaps ” The Great Pretender” can request the help of the brilliant minds that rule his native Kenya.

Adios mates, been good to know ya!

Monte

By: Ciceroji

Ciceroji — Fri, 27 Feb 2009 17:33:21 +0000

Martin I think you are definitely a banker. Your entire argument is from the banking point of view. And I think you are entirely right nationalization is not good for healthy banks. However, who cares. Yes banks are the lifeblood of the economy. As long as they are lending to good clients even if they are barely making any money (think utilities here) I have no problem with that. Yes, their stocks will go in the toilet, but once again as long as there is money flowing to good projects in the economy not a problem. The only potential hazard I can see is if the nationalized banks start throwing good money at bad investments (That would be a disaster). All the rest is only a problem if you are a banker, however the rest of the economy will be fine.

I am not sure the nationalized banks will necessarily be more competetive. It depends on how tough uncle sam is. If uncle sam requires a 6-10% yield on their investment, these bank will be struggling to repay uncles sam. If they get free money well thats a different story.

If they get free money and really drive down interests (which is by the way what uncle sam wants) then a problem might arise if that makes some other previously healthy banks unhealthy.

By: Mark Jones

Mark Jones — Fri, 27 Feb 2009 13:07:40 +0000

The additional issue here is the long term overhang on the stock price and mkt as a whole as these large cos have significant gvt holdings