Trust: The Reason Bank Nationalization is Essential
It has come to this. Our economy is in grave danger. Trust in many of our banks and lending institutions has evaporated. Without trust, without confidence that your counter party financing institutions can deliver or be trusted to execute the obligations they undertake, commerce as we know it will come to a standstill.
If I may, let me give you an example from personal experience. Many years ago while still active in the trading of commodities and physical raw materials I sold a cargo of sulfur to Chile. Now sulfur is the building block for sulfuric acid, which in turn is essential to the production of chemical fertilizers as well as being a key ingredient in the production of explosives for mining operations (think Chilean copper and Chile's bountiful agricultural sector). The transaction was negotiated at a time when the Chilean economy was under enormous pressure. This was during the turbulent Allende presidency, a period during which its commercial relations with the West were sorely strained.
In international commerce, transaction payments for the delivery of supplies are normally executed through letters of credit. The Chilean buyers were happy to oblige and offered to establish a letter of credit issued by Chile's largest bank, the O'Higgens Bank. At that time relations with the U.S. were such that the O'Higgens Bank was unable to find an American bank as counterparty to confirm its obligation to pay against our presentation of the title documents for the multimillion dollar cargo.
It was made clear to the Chilean buyers that without a confirmation from a major banking institution outside Chile, we would not release the cargo. You see, we had no trust that the O'Higgens Bank of that time had either the means or capability to pay down the Chilean buyers' obligation as and when title documents for the cargo were delivered to them. There was no trust, and without trust in the banking institution as payee, the contract would not be executed.
So what happened? The O'Higgens bank was able to to induce the Novrodny Bank of Moscow (I'm not making this up) to confirm the credit. Again, with the political hazards of that cold war moment, we declined the Novrodny Bank confirmation. They obviously needed the cargo badly, and the Novrodony bank thereupon arranged to have the credit confirmed by the Bank of Montreal, an institution well known and respected (our Canadian operations had a long standing relationship with them). Trust was established and the shipment went forward.
Without the element of trust the deal would have been aborted. And there in a nutshell is what our financial sector is facing today. Trust has evaporated. No matter the billions upon billions of TARP funds that have flowed into these myriad zombie banks, funds used to prop up the banks and put their balance sheets into a better light (in the case of Citigroup and Bank of America alone, sums far exceeding their current market value). What has not been achieved is recapturing the trust of the business community, the governing class, nor the nation's citizenry. There is no transparency. Neither we, nor the government fully understand what the banks are doing with the funds showered upon them by the TARP agency. Most damaging is the almost universal lack of confidence in the competence and integrity of these tone-deaf managements who have clearly gotten us into this mess.
With the mention of "nationalization," the howls of outrage coming out of what is left of Wall Street and their government allies are chilling. The projected pain of shareholder equity being wiped out is more than the bank nabobs had ever considered when plying the financial system and the nation with their toxic razzmatazz , taking us all over a cliff, all the while contemplating their shameful year-end bonuses which in retrospect give more the appearance of fraudulent transfers than earned income.
For the government to keep on plowing billions into these banking institutions, without achieving transparency, without control over the sad sacks who got us into this mess is lunacy. Confidence would be restored to the banks almost overnight, to their obligations, their lending capabilities, if a broad nationalization of the zombie banks were to be mandated by the government. The system would function again and America could get back to business.
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So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect “N” word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn’t amount to political suicide for Obama. The FDIC’s Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine “too big to fail” banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. Not to drive a stake through the hearts of these de facto “zombie” banks really would risk a Great Depression II and an “L” shaped lost decade.
Whatever happened to the law (Title 12, Sec. 1831o) mandating that banking regulators take "prompt corrective action" to resolve any troubled bank? The law mandates that the administration place troubled banks, well before they become insolvent, in receivership, appoint competent managers, and restrain senior executive compensation (i.e., no bonuses and no raises may be paid to them). The law does not provide that the taxpayers are to bail out troubled banks.
We should do whatever the Canadians have done. They haven't had a bank fail since 1890.
http://seekingalpha.com/article/120680-canada-vs-u-s-whose-banks-are-safer
What a run, NO bank failures for almost 120 years is amazing...
The Treasury moved to raise its stake in Citigroup (C) by up to 40% by converting preferred into common, yet another step down the road to creeping nationalism. With C trading as low as $1.20 on Friday, taking its market cap down to a mere $10 billion, does anyone care? The markets have already delivered their own judgment. Does this mean my ATM is going to start working with the same frustrating inefficiency of Amtrak, another poorly run government entity? The market cap for all 24 banks in the S&P 500 subsector has shrunk to $269 billion, less than the capitalization of Exxon (XOM) at $354 billion. The stock market hated all of this and fell 251 to a new 12 year low at 7,114.
Well, nationalizing would make it all that much easier for the Gov't to default, institute a hemisphere wide new currency, and hence bowing down to a New World Order scenario. Ah well, who cares, let the Illuminati win.
The Bank of International Settlement, IMF and World Bank are all waiting in the wings to do just that. If the true value of the derivatives is in the 650 TRILLION DOLLAR range, then there is not enough money in the world to stop that bleeding. Default and a new world order will be the only option they will give us.
and that seems to have been the plan for the last 8 years. first time ever taxes were cut during a war...
There is a Constitutional CONTRACT between the Government and the American People.
We made a deal based on Trust with our Federal Government that in return for pledging our allegiance to the Constitution and the nation, that for following the laws, working hard, being good and trustworthy citizens, that we will in return receive certain assurances and protections.
They broke that trust when they flooded the market with cheap money and the President and the head of the FED went on TV and told Americans to buy houses now! They broke it by encouraging formerly well run companies like Fannie and Freddie--America's lenders of last resort--to become gamblers and speculators. And they broke it when they told the mortgage companies to develop "more creative" financing that they knew would wipe out low income and minority buyers.
They broke our Trust; the part where it says to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity." Justice was replaced by greed, Tranquility by loss and fear, and the General Welfare applied only to the wealthy. Just as we've been taught since gradeschool, we were good hard working Americans and we Trusted. We had a deal. But the Government became a partner, struck another deal, with a different group of folks, and now, all bets are off!
Mr. Learsy,
You see the problem correctly. However, your solution does not arrive from calm logical analysis, but it is emotional swing from one extreme to another, with the magical belief that this might work. There is no magic in economy, just facts an logic. Your argument is not support by either.
Banks lost our trust and some of them need to die as dinosaurs did. If we let it happen in October 2008, most of the pain would be over by now, http://www.huffingtonpost.com/henryk-a-kowalczyk/its-time-for-financial-di_b_128466.html .
The government should recognize that banks had unfair advantage in manipulating the homeowners. Subsequently, the government should use its power to correct this flaw of the free market. However, it should do it not by limiting freedoms of banks in conducting their business (as proposed by Obama), but should do it by expanding freedoms of homeowners. It can be done by forcing banks to take the government loans to cover all the defaulting mortgage payments for the next six months.
This way, the government would stay as the guarantor of the constitutional freedom of enterprise. Details of this proposal are here, http://www.huffingtonpost.com/henryk-a-kowalczyk/the-simplest-plan-for-hel_b_167642.html . In this concept, the government does not spend a dime, and does not need any new bureaucracy.
The Chilean bank probably was sabotaged in its efforts to find a correspondent US bank by the Nixon administration.
I wonder how many LCs opened through US banks hold any trust nowadays worldwide... probably not worth the paper they are written on.
Last summer with my home was in foreclosure my bank offered to revise my mortgage. I made larger payments, but as soon as the bailout bill passed, they refused to abide by the offer they made before our tax money infusion beefed up their foreclosure department. TARP enabled them to hire more foreclosure attorneys to vigorously attack homeowners. They refused to roll the missed interest payments into my principal, and suddenly demanded a lump sum that they knew I couldn’t make, ensuring that they could take my house. Not only do hard working middle class Americans have to pay for the bailout for the next hundred years or so, to add insult to injury, it was our tax money infusion into the banking system facilitated their greedy attack.
Tell Obama to stop giving banksters our tax money. No amount of “oversight” will prevent these greedy banksters from abusing public financial support. The government, OUR government, should just buy the at-risk mortgages and let those of us who could actually make our payments do so. Fewer foreclosures means a more stable real estate market and a more stable economic foundation across the country. Then when the economy recovers, we the people (not the banksters) will profit for a change.
You need an attorney to look at the transaction your describe, and for TILA and RESPA violation sin you original loan. In addition the process where you signed the loan documents, typically 90 or ore pages, without expert advice could be considered unconscionable advantage.
To repeat, you need an attorney.
Lots of PRO BONO attorneys out there....humm...
It is time for Congress to abolish the Federal Reserve Bank system. Creation of money ought to be owned by the American people. Our money is based in debt - it is created by debt. If we were to pay all our debts we would not have any money in circulation. We ought not be surprised that that we are being devoured by debt. Debt is in the very core of our current money creation system.
The argument that the privately owned Federal Reserve Bank is better than government owned system of money creation is laughable. If anything, our current situation shows the utter corruption of the present system.
Absolutely. The Federal Reserve is a criminal cabal of private bankers that has been sucking this nation dry since 1913 (the dollar has lost 97% of its purchasing power in that time), and especially since 1971, when Nixon closed the gold window (we've experienced price inflation of 430% since then). Americans need to wake up--this isn't a Democrat or Republican thing. There's one party in the U.S., and you and I aren't members. The U.S. government has one mission, and one mission only: INFLATE OR DIE. Anything else they tell you is a lie. We need to repeal the Federal Reserve act and place the U.S. dollar back on a gold or silver standard, even if that means the gold price goes to $10,000 and silver goes to $200. Anything else (i.e., "stimulus" packages) is national suicide.
Love both posts, vooter and spotson--Wonder how old Henry A. Kowalczyk who posted above feels about the unconstitutional and illegal not-federal reserve printing money that the Constitution says is the right only of the Government?
As the Berkeley Economist on KPFA radio said yesterday, we could buy the top five failing banks, GM and Chrysler, for their current stock price, in the neighborhood of a few hundred billion and own them all outright. Instead it looks like Obama will continue the failed policies of Bernanke and Paulson and flush Trillions down the same rathole. Where's the logic?
Oligarchy. Their disdain and contempt for the middle class is so obvious it is painful to see. TOO BIG to FAIL vs too small to notice. They are killing the Golden Goose.
To 'Nationalize' the major US banks, is to acquire their hidden 'stage 3' derviatives... that are not listed on their balance sheets because they're part of an unregulated marketplace that doesn't require that they be publicly accounted for. The real crux of the worldwide financial catastrophe that's now upon us is these 'stage 3' 'toxic assets' that banks are hiding. Reportedly, they total out to $680 TRILLION dollars worldwide… with the major USA banks, that we seemingly want to 'Nationalize', holding $160 TRILLION dollars worth of these now valueless 'assets'.
So if we 'nationalize' the major USA banks... we 'Nationalize' their hidden, 'stage 3' 'derivatives' as well. And we simply cannot afford to do that.
Floating the 'Nationalization' idea is the last ditch hope of the SuperWealthy, as they desperately want to get the US taxpayers to assume the burden of these $160 TRILLON dollars worth of 'stage 3' investments.
Lets' avoid this trap, shall we ? Let's do as noted UK economist William Buiter suggests. Let's create 'GOOD BANKS', and fund them with the funds that we would have given to these insolvent banks (Citi, BOA, etc.) (Google: 'Buiter, Good Bank' for more on this idea.)
No to 'Nationalization'... Yes to 'GOOD BANKS'.
Void the contracts. That's a soverign right if it's believed a crime was comitted. Such as illegal gambling, or illegal insurance.
Agreed! If you placed bets like those with the Mafia, and didn't have the actual cash to pay off if you lost, well...
It is also Racketeering which is what they got Charles Keating on...
This is entirely accurate. It is why restrictions and oversight of the derivatives were removed in 2000. This talk of Nationalization is just more good cop bad cop to make the people feel it is the only choice worth making. The MSM lines up behind it, one party says yes, one party says no, the people begin foaming at the mouth for it because it seems the won't get it, and in the end Obama says,"Well we hafta do this things cuz the People want it." What a crock. The only ones to benefit will be the wealthy who created the problem in the first place.
And according to and interview on KPFA's "Against the Grain" radio show yesterday, we are looking at perhaps 5-6 years of Depression and unemployment of over 15%, especially if we continue to pursue these bailout programs that prop up the worst offenders at our expense.
A very good explanation of the subprime crisis, ths Sub Prime Primer:
http://managersmagazine.com/index.php/2008/09/subprime/
In India we have state bank of India and so many other banks which are privately owned. In stead of nationalizing the existing banks thereby punishing the share holders, government can start their own bank to obviate the kind of problems illustrated in the article. To have a parrallel bank like that would protect from the total collapse of banking sytem in our country.
For almost 18 month now do we have fundamental crises of our financial system?
Since August 2007 we pumped Billions and Billions of Dollars in the crumbling banking institution without any affect what so ever.
It is obvious that the top financiers (the owners of our country – massively supported through he republican party – the top 1 % of the population – the owners of corporations – old money – new money..) are determined to do whatever it takes to keep control of what they have at any price – even if all go under and WW 3 emerges.
The main problem is that the financial institutions and federal reserve’s of the world (central banks) want to buy or honor (in one way or another) the toxic – worthless waste caused by scrupulous – insane speculations of big Wall Street Banks. (Enabled by Alan Greenspan and George Bush’s free market policies).
Here is what we need to do:
We need to massively support President Obama by helping him to put severe oversight over our financial institutions and Wall Street.
Business as usual is definitely over – Corporate America has failed.
We need to put an end to those speculations (hedge funds, derivatives...), and we need to force banks to lend credit to the real economy.
Fundamental change is needed to save us all.
Read Krauthamer's article from Saturday--he is already setting Russia up as the next bad guy for a Real war, not a little one like Bush's war on terror. If the banks grow fearful enough--or greedy enough--we will go to war, and they will fund it as they always do.
With what will they fund it? Oh, I'm sorry, they will do what they always do: They will steal it! I'd forgotten for a momenta that we're dealing with banksters.
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