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Pelosi: Nationalization of Banks Possible

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January 27, 2009 – Comments (21)

House Speaker Nancy Pelosi (D-Calif.) says that the idea of nationalization, or perhaps partial nationalization, of America's leading banks is gaining currency among U.S. policymakers.

"Whatever you want to call it," Speaker Pelosi told ABC News, "If we are strengthening them (the banks), then the American people should get some of the upside of that strengthening. Some people call that nationalization."

Problems with Citigroup and with Bank of America may well require further infusions of federal funds into the banking system, according to news reports. Already, more than $300 billion has been given by the government to those two banks and to hundreds of others.

"I'm not talking about total ownership," said Pelosi. "Would we have ever have thought we would see the day when we'd be using that terminology? Nationalization of banks?"

President Barack Obama and his aides are not employing the same language but are apparently thinking along the same lines.

A report in The New York Times says that the administration is considering creating one, large "bad bank," which would nationalize the worst underperforming loans. This would take away the bad loans from the bank without actually nationalizing the institutions.

One of the reasons the Obama administration is moving cautiously on nationalization is that if the government owns the banks there would be political pressure to stop foreclosures of distressed loans.

But nationalization remains alluring for the Obama team as the move would halt the failure of large banks, allowing them to start raising money and begin lending money once again.

The concept of nationalization is quite foreign to Americans. Yet during the Asian financial crisis of the late 1990s the very economists who are discussing possible nationalization, among them Treasury nominee Tim Geithner and Obama adviser Lawrence Summers, told overseas governments they had to be willing to let major banks fail.

"We told the Asians that they had to be willing to let banks and companies fail," Jeffrey Garten, a professor at the Yale School of Management, and former Clinton administration official, told The New York Times.

"We warned that there was a great moral hazard if governments just bailed them out. And now, we are doing the polar opposite of our advice."

© 2009 Newsmax. All rights reserved.

[I can't imagine this will be an easy sell in Congress or with the general public.  It's outrageous that the government would consider taking over, with tax-payer dollars, all the toxic garbage from banks to let them continue to operate.  Why not extend the same nonsense logic to the general public?  Too many people have lived beyond their means and can't keep up with their bills, so why not have government pay off all their credit card debt to allow them to continue spending beyond their means?]

21 Comments – Post Your Own

#1) On January 27, 2009 at 1:22 PM, FleaBagger (29.37) wrote:

She must be wetting herself with glee.

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#2) On January 27, 2009 at 1:30 PM, semper77 (33.58) wrote:

Okay, so let me just throw this out there. What if you "nationalized" the 10-20 largest banks (the ones too big to fail) and allowed all the smaller community and regional banks that are overexposed to C & D loans to fail?

Seems to me that we are allocating way to much TARP money to  banks that don't have a prayer of surviving anyway....

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#3) On January 27, 2009 at 1:41 PM, djemonk (< 20) wrote:

Seems to me that we are allocating way to much TARP money to  banks that don't have a prayer of surviving anyway....

And they're just using it to buy new corporate jets, anyway.

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#4) On January 27, 2009 at 1:50 PM, TDRH (99.76) wrote:

Who lives in her district/area whatever?   How could you elect this thing?    Is this the best you have to offer?   Scary thing she is third in command of the entire country.  I hear her speak and I keep thinking, "Do you really think I am that stupid?"  Guess she does, and she is probably right. 

This government has no idea what they are doing.   Nobody is being prosecuted with the exception of a man who admitted doing it so he would not be hunted down like a dog.   No changes in the law to keep this from happening again.   Just a ridiculous circus.  

Sorry for the rant on your blog.  

 

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#5) On January 27, 2009 at 1:54 PM, kdakota630 (29.81) wrote:

That's what blogs are for, TDRH.  No need to apologize.

And she's from San Francisco.  That shouldn't come as any surprise.

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#6) On January 27, 2009 at 1:58 PM, edwjm (99.87) wrote:

TO semper77 

You have it sort of backwards.  We should let the 10--20 largest banks fail (or more precisely, those those that can't survive) and establish a national bank to replace them.  It should be responsibly run and compete with the surviving banks until the time when the national bank can be safely privatized.  As for the smaller community and regional banks, I think that you would be surprised at how many of them would NOT fail.  Many of them are far more responsibly run than the so-called "too big to fail" banks.

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#7) On January 27, 2009 at 2:09 PM, DarkToast (75.03) wrote:

What a terrible, terrible idea. The government (the taxpayers) will take all of the banks underperforming garbage, leaving them with their producing investments? What possible benefit is there for the taxpayers?

Pelosi has been nothing but a dissapointment. She was elected to impeach Bush, but she turned out to be another fascist in liberal clothing. She needs to go, that would be change I can believe in.

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#8) On January 27, 2009 at 2:11 PM, kaskoosek (92.46) wrote:

This is the best idea I have ever heard.

I know that caps player are going to cry foul, but we have no other choice.

This is a much better idea than the fiscal stimulus which is completely counter-productive.

Wipe out all the shareholders and then when the economy is up and running go public. This way tax payers will not pay the tab.

By the way forclosures should continue, all top management should be fired since they have done a shitty job, down size, liquidate all uneeded assets and then we are set to go.

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#9) On January 27, 2009 at 2:25 PM, FreundInvesting (29.60) wrote:

""I'm not talking about total ownership," said Pelosi. "Would we have ever have thought we would see the day when we'd be using that terminology? Nationalization of banks?""

You wouldn't, Pelosi, because you know nothing about finance/banking/etc...

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#10) On January 27, 2009 at 2:26 PM, motleyanimal (93.53) wrote:

A few banker CEO heads on pikes outside the NYSE is all the reform we need.

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#11) On January 27, 2009 at 2:40 PM, FleaBagger (29.37) wrote:

You liberals think that more gov't power in the hands of bureaucrats and environmental scientists is heaven on earth, and totally different from more gov't power in the hands of corporate lobbyists. You think that we need smarter gov't, not smaller gov't. Wake up! Your liberal candidates are inherently fascists. Your smarter, bigger gov't is Big Brother from that book you love to reference, though you do not understand it, 1984. Your vocabulary is perverted by propaganda, to the extent that you think gov't ruling more of your life means more freedom.

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#12) On January 27, 2009 at 3:05 PM, Mary953 (66.50) wrote:

said Pelosi. "Would we have ever have thought we would see the day when we'd be using that terminology?"

Of course, you won't use that terminology, dear.  You won't nationalize the banks.  You will lend a gentle, helping hand and carry them along.  You won't create a teeming cesspool of bad debt that will drag our tax dollars down into unending sludge and waste; and cripple every person in this country who acted responsibly.  You will  "create a bad, (no - too judgemental), a naughty bank and send it to sit in time out for a while. 

What sort of idiots do they think make up the population of this country?  And how exactly is a Speaker of the House impeached before the country is turned into a government of Socialism - paid for by the people, from the people, to the government.  I have no wish to live in Orwell's 1984 complete with doublespeak.  I didn't like the book.  I especially didn't like the SuperBowl commercial   http://www.youtube.com/watch?v=OYecfV3ubP8  And I DON'T want to live there or have my freedom loving country turned into one against the will of her people.

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#13) On January 27, 2009 at 3:06 PM, kaskoosek (92.46) wrote:

FleaBagger

Let us be realistic.

Hoping that the free market will sort this one out is not going to work. This method has been previously tried in Scandinavia and was successful.

The world is not black and white. Some times the free market is not the solution for everything. Eventhough it is usually very efficient.

 

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#14) On January 27, 2009 at 5:16 PM, semper77 (33.58) wrote:

FleaBagger -  I’m not a democrat or republican, but I must say that you speak of the dangers of  “propaganda” while at the same expounding the same “We Republicans stand for small government” propaganda that I’ve been hearing for the last thirty years. Referring to the huge government spending figures of both Bushes and Ronald Regan, can you point out to me the Republican President who actually adhered to this campaign promise once elected? Please tell me which one of them actually shrank the size of government, I’m sure we'd all like to know.

 

Edwjm – I’m not suggesting that all the small banks would go under. On the contrary, most wouldn’t. However as US tax payers we now own shares of stock in 338 banks, most of which we never heard of and in my opinion are not investment grade. Two-thirds of the current TARP recipients are overexposed to risky construction & development loans and nonfarm / nonresidential real estate loans according to U.S. regulatory guidelines. My feeling is that somewhere in the order of 160 of these banks would go under in the short term were it not for the propping up that is currently happening. My biggest concern as a taxpayer (and by extension, now a “mandated investor”), is that at least half of these banks will eventually go under anyway (ie. they are beyond saving), taking my tax money with them.

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#15) On January 27, 2009 at 10:29 PM, Nainara (< 20) wrote:

FleaBagger: "You think that we need smarter gov't, not smaller gov't."

This is a very good characterization of the public stance.

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#16) On January 27, 2009 at 10:59 PM, StockSpreadsheet (74.73) wrote:

In his blog, gne1963 pointed out 5 regional banks with good balance sheets that are refusing TARP money and stating that they are well capitalized and therefore don't need the money.  Instead of creating one big national bank to take all these bad assets or giving more money to the current disaster companies, (C, BAC, etc.), I think we should pick somewhere between 20 and 100 of the smaller, well-capitalized banks and give the TARP money to them.  Then we tell the "too big to fail" banks that they need to sell assets to pay back their loans, (such as selling branches, corporate jets, etc.).  The branches, (and the deposit accounts associated with each), could then be purchased by the well-capitalized banks that recieved the TARP money, (and any other bank that could afford to purchase the assets), to become bigger banks.  This downsizes the "too big to fail" banks and gives more assets and branches to those that have handled their finances responsibly. 

If any of the "too big to fail" banks don't have enough assets to pay off their loans, then the government can take them over and sell the assets themselves to the highest bidder.  Better to do that than keep pumping money into institutions that have shown they don't know how to responsibly handle money.

Just my two cents.

Craig 

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#17) On January 27, 2009 at 11:58 PM, smithydoogle (35.10) wrote:

The idea of to big to fail is the underlying problem behind this mess. The idea of becoming so large that you cant fail is absurd. Like any business decision becoming large has its own risk, such as becoming large the possibility to make massive profits becomes easier if the economy is doing well or better than normal. The downside to this is that being so large leads to losses when the economy is not performing well or stagnant. The second scenerio is also exacerbated by leverage. The idea that the government some how is going to stimulate this economy is absurd. The government can continue to throw money at this problem by giving it to the company's that made the bad business decision of becoming to large or leveraged it.

We as Americans need to view how does a business make money they produce a good or service, that is in demand. Presently these Too Big to Fail businesses provide a good or service that no one wants. Why because the demand is not there at the cost it is being offered. The best solution to this problem is to forgo spending the rest of the tarp and give everyone in the US the remainder of the 350Bill in tarp money which would be roughly $1,150 per person(think if you had children). Also note Obama's possible plan spend 1trillion to get the economy going again, how about take that and the tarp and give it to us the people(1,150 +3,250= 4,400). I am positive $4,400 for every person in America would have a huge impact and we would see home sales, car sales, and other retail sales increase, this would lead to more business growth and loan growth, as well it would increase bank reserves. This is a stimlus package for everyone not just wall street or main street. This is a way forward by allowing Americans to choose how to spend money not the Government and Cocky CEO's. It is also important to note as tax payers we will have to foot the bill for this anyway you put it, why not have it in our hands.

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#18) On January 28, 2009 at 12:23 AM, DaretothREdux (49.28) wrote:

kaskoosek,

You think we have to nationalize to do what you are suggesting? Why not stop "stimulating" and let the ones fail that should have already failed? Wouldn't it have the same result as what you are proposing without wasting taxpayer dollars on people that made stupid choices?

Your argument to fleebagger seems silly in my opinion...how can you say the free market won't sort it out if we have never let the free market try? Everytime things go bad (because of government intervention) we try to fix it with more government...the sad part is that they have you believing they are the solution and not the problem.

StockSpreadsheet

Why would we give out taxpayer money just for the sake of giving out taxpayer money? See, again the problem is not the solution. More government cannot solve too much government. The banks that were responsible don't need money. They made money on their own because they were smart...the banks that didn't should fail for their stupidity (they knew the risk when they began...why give them a free ride now?).

smithydoogle,

I have suggested your "plan" as a joke in the past...you will find it in my blogs...but it was a joke because you cannot solve the problems of this country with more money. All you would be doing is redistributing money and instituting communism in the place of facism. Both will lead us down the path of failure. The money would run out in no time and we would be right back to where we started (or maybe worse) because so many people would just use it to pay off debt and buy stupid shat that depreciates and doesn't hold value. Therein lies the problem with our society. We need a fundamental change in both thinking and government. Until then, we are doomed to repeat this crap until we have nothing.

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#19) On January 28, 2009 at 8:30 AM, russiangambit (29.49) wrote:

> Who lives in her district/area whatever?   How could you elect this thing?    Is this the best you have to offer?   Scary thing she is third in command of the entire country.  I hear her speak and I keep thinking, "Do you really think I am that stupid?"  Guess she does, and she is probably right.  TDRH, this is too funny, in a sad way. I live in Texas, the super-conservative stronghold. Aren't you as well? And from what I see, - the ideology, i.e. being democrat vs. republican doesn't solve anything. Otherwise, if republicans were so great, we would've lived in a paradise here in Texas already. In the end, you want your politicians to be pragmatists, i.e. to do what is the best regardless of the ideology.I , personally, would vote for Nancy Pelosi any day if my other choices are Key Hutchinson and John Cornyn. From what I see here, and may be it is different in blue states like California, but in Texas the republicans are much more blinded by their ideology than democrats. And I never liked dogmatic people, because most of the time they turn out to be hypocrites.

 

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#20) On January 28, 2009 at 10:06 AM, Mary953 (66.50) wrote:

My own two cents worth - If the largest banks fail, they take with them the mortgages of a lot of people who did keep paying and are good credit risks and have done what they should to be responsible.  I like Craig's idea (Stock Spreadsheet) because it provides solidly-run banks with the capital to pick up those loans and the well-run portions of failing banks that can be sold off.  The banks that are failing due to poor management will have funds to pay back their TARP money (which can then be put back in the US Treasury or turned toward this venture) and the good loans that they have made will be considered as assets to be sold (insuring that individual credit ratings are retained).  The TARP money would be offered as a tax-free, interest-free loan to be paid back under strict terms and guidelines.  It is survival of the fittest.  It is intolerant of failure.  It is not feel-good politics and business as usual.  It is necessary. 

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#21) On January 28, 2009 at 12:08 PM, edwjm (99.87) wrote:

3 cheers for Mary953!

And Craig too!

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