Avoid the cold-war framing: It is not 'nationalization' It is 'receivership'

[Kurt_and_Hunter]

Nationalization is a loaded word with a century of right wing vs. left wing connotation.

When someone gains power in third-world country and nullifies existing contracts with oil companies because they are too one-sided that is called nationalizing oil.

Example: We installed the Shah of Iran at the request of Britain because the democratic government of Iran was going to throw BP out of Iran and Nationalize the oil industry.

"Nationalizing" suggests that the nation actually WANTS the industry.

We do not want to control the banks so that their profits will flow to the government.

We (some of us) want to place a few insolvent or quasi-solvent banks in a form of receivership so that we can take our inevitable losses efficiently and stabilize the system more quickly so that we can get the troubled institutions back in private hands generating profits for private parties as fast as possible.

"Nationalize" sounds permenant and genrally applies to entire sectors of the economy. No mainstream 'nationalization' proponant wants to nationalize the banking sector. They are talking about intervention in a few individual banks within the larger private banking sector.

Since words have political power I would recommend that pro-nationalization people stop referring to it as nationalization. It is much more like receivership which is a conventional business concept understood to be temporary.

The FDIC has taken over countless banks over the years. Nobody ever says those banks were "nationalized," even if they were, because those FDIC actions were not politically controversial and nationalize is, in our culture, a negative term.

[Sarah Ibarruri]

1. I wouldn't mind nationalization, but I'd much prefer to kick all Repugs out of this country

And thank you for explaining the difference. I wasn't sure there was a term that explained what was being done.

:toast:

[ericgtr]

2. Nationalization is the right word don't let the GOP frame it

They love making out appropriate words to be the bad word. Fuck them, it's nationalization. Own it, embrace it and preach it.

[Aloha Spirit]

3. I agree, but the Brookings Inst. report said it's very likely the Govt will need to run them for

several years:

"the government would likely own these
banks for years. Virtually all American support-
ers of nationalization view it as a temporary receiv-
ership. Unfortunately, the complexity and size of
the largest banks would almost certainly require
major government ownership for many years, ex-
acerbating the concerns about the government be-
ing a worse long-term owner than the private sec-
tor. First, there simply are no acceptable buyers at
the moment with the wherewithal and interest in
buying all or a major part of Citigroup or Bank of
America at a good price. It will likely be some time
before private capital is interested in re-entering the
field in the necessary size. If anyone is lured in be-
fore then, it would almost certainly be as a result of
a truly “fire sale” price. Second, the very complexity
and interconnectedness of the parts of these large
banks would require a long time to sort out, again
unless the government were willing to sacrifice a
great deal of economic value for speed.

It is worth remembering that it took the govern-
ment seven years to completely divest Continental
Illinois, despite the much more benign environ-
ment, including a roaring bull market for much of
the period. Citigroup has 50 times as many assets
and a much more diverse set of operations. Similar-
ly, there was great hope of divesting many of AIG’s
operations quickly, especially as some of them are
strong operations with their own well-respected
brands. To date, however, there has been very little
progress on this score, largely because everyone,
it seems, is trying to divest operations at the same
time. "

http://www.brookings.edu/papers/2009/0225_bank_nationalization_elliott.aspx

[Kurt_and_Hunter]

4. I am assuming at least five years, ten in some cases.

But the intervention would be understood to be temporary up front, so it's not restructuring the philosophical structure of the economy in the way that is meant when someone says "Country X nationalized Industry Y"

For instance, the government currently controls the disposition of all of Circuit City's assets and debts but nobody says we have nationalized the home electronics sector.

There are stability reasons giant banks cannot go through conventional bankruptcy so we have a system of bankruptcy by other means managed by the FDIC.

When the FDIC takes over First National Bank of Fargo nobody notices or cares.

But if they did the same thing with Citi it would be called nationalization because it would be in the political interest of some folks to use that loaded term.

[Aloha Spirit]

5. Ah, now that you've taken out the "limited", I agree completely. Do you think Krugman

knows that this would be a very long process?
I find it hard to believe that people could think a 5 to 10 year receivership, along with having to (probably) pay all the shareholders, is the best strategy right now.
To me, it sounds like a very last resort.

[Kurt_and_Hunter]

6. I realized it was redundant

All receivership is temporary.

Yes, Krugman recognizes a 5-10 year time-frame.

And the point of receivership versus ongoing cash infusions is that receivership wipes out the common-share holders, pretty much by definition.

I am far, far from a pitchfork populist but to me it seems a great error to let the stock prices of the money center banks regain value.

Since share-holders will be wiped out the time to put Citi in receivership was when it was $1.00/share, minimizing the loss to share-holders.

When Citi struggles up to $8.00 a share there will be 8 times the squealing if Citi proves insolvent.

[Aloha Spirit]

7. Shareholders will not necessarily get wiped out... they weren't in the S&L banks.

I think this is part of the reason receivership is not desirable right now.. as there are legal uncertainties that could be very costly.