Calls for Bank Nationalization Are Increasing
I wrote a few weeks ago that nationalization may be one important way to create accountability and stability in our financial system.
I have no special knowledge as to whether or not this is the correct solution to our massive bank insolvencies, but lots of people seem to think it might be.
If Banks Are Nationalized, Will It Happen Soon?
If nationalization might be in the cards, when can we expect it to happen?
The trick is that if banks are nationalized, their stocks will become worthless. That means any announcements of a nationalization plan would send those stocks plummeting. This is one reason why many observers think the Administration might keep a nationalization plan under wraps until it is ready to be implemented.
Adam Davidson of NPR further indicates that a nationalization plan would likely be announced on a Sunday:
“This is why so much of the big government moves happen on a Sunday afternoon. They wait until the markets in NY close on Friday, then they pounce. They spend a sleepless weekend–when global markets are closed–putting everything together and then announce it on Sunday afternoon, NY time, before Tokyo’s stock market opens.
“If the economists who tell us that nationalization is inevitable are right, then we’ll probably see things happen just like that. We’ll get breathless, hurried rumors on a Friday evening followed by a Saturday of confusing, contradictory leaks and a Sunday news conference announcing that the U.S. government now owns and operates several of the world’s largest banks.”
Part of this prediction could already be happening as traders today apparently worried about an impending nationalization and sold many financial stocks.
Economist Nouriel Roubini, on the other hand, thinks Obama plans to wait a few months before nationalization:
“The savvy Geithner, this theory goes, has determined that seizing Citigroup (C) and Bank of America (BAC) now would trigger a run on the bank at JP Morgan (JPM) and Wells Fargo (WFC)–thus forcing the immediate seizure of those giants, too. JPM and WFC are also insolvent, so this wouldn’t be irrational, but Geithner and his bosses might get blamed for destroying them.
“In 6-12 months, meanwhile, the market will gradually have realized that JPM and WFC are insolvent, so nationalization will no longer be a startling alternative (and Obama and Geithner won’t get blamed).”
My guess is that the odds of nationalization are probably very slim and that it would probably happen in weeks, not days, from now. But if it does happen this Sunday, I guess I can say I told you so.