February 15, 2009
The Lady or the Tiger?
Hint: the Lady is behind Door (b) …
Focus just on the big four money center banks: Citi, B of A, Wells Fargo, JPMorgan. According to this estimate, they need around $450 billion. Meanwhile, their combined market cap is only about $200 billion — and part if not all of that market cap surely represents the “Geithner put,” the hope that stockholders will in effect get a handout from the feds.
Given these numbers, it’s extremely hard to rescue these banks without either (a) giving a HUGE handout to current stockholders or (b) effectively taking ownership on the part of we, the people. Of these, (a) would be politically unacceptable as well as bad policy — but the Obama administration isn’t ready to go for (b), because it’s not in our “culture”.
Hence the perplexity of policy. Our best hope right now is that the “stress test” will make (b) inevitable — that Treasury will declare itself shocked, shocked to find that the banks are in such bad financial shape, leaving government receivership unavoidable.
Posted by Jerome Doolittle at February 15, 2009 07:38 PM
I don't see why an FDIC receivership is outside our culture. I think the stress test may be designed to facilitate this, but of course they don't want to say it because they don't want to spook the market more than it is already.
I figure they're waiting until everyone's clamoring for nationalization, which shouldn't be long.
The IMF is now involved and the stress test is is actually the audit that the IMF ordered a year ago and was put off by the Bush administration, no doubt with pappa Bush's help (Saudi) until chimpy was gone. The banks that have put the financial system into a tailspin and have acted over the years with no regard for the financial health of the rest of the world will pay an exact price. It's not nice to fool with mother nature! My view is nationalize the banks are to big to fail and let a mild recovery occur so as to avoid the American populace going all Icelandic on Washington. And then when things settle down elinimate the Federal Reserve and take Washington's credit card away and that would be change I can believe in!