When the going gets weird, the weird turn pro. - Hunter S. Thompson

24 February 2009

The game is up

Chalk another prediction up in the "win" column for Nouriel Roubini: all signs point to nationalization of major US consumer banks in the very near future.

The game is up: within the next few weeks, if not days, the US government will have to step in and nationalise one or more banks.

The likely candidates to the dubious honour of being owned by Washington Inc can be found at the end of a sad trail of credit losses, management mishaps and share price collapses.

Come on down, Citigroup, Bank of America and a motley crew of regional and community banks. Barack Obama, US president, will have to draw on his vast oratorical skills to avoid using the N-word but make no mistake: the authorities are going in.


Crushed under a pile of toxic assets, paralysed by wafer-thin balance sheets and deserted by fearful investors, once-mighty institutions such as Citi and BofA are barely able to perform basic functions such as lending and underwriting.

In fact, the only reason they have not joined Lehman Brothers, Bear Stearns and Washington Mutual on the financial scrapheap is that taxpayers have propped them up with more than $500bn in cash injections and guarantees.

At this stage, some form of nationalisation is both a political and financial imperative. On the political front, the concept has won backing from unexpected quarters. This newspaper’s account of Alan Greenspan’s conversion from icon of free-market liberalism to proponent of a temporary nationalisation was mind-boggling.

To couple that with a similar U-turn by Lindsey Graham, a Republican senator who has built a political career out of his love of small government, was just astonishing.

The reality is that even the right wing of the political spectrum realises that banks cannot be left to their own devices while in receipt of federal funds.


Banks will not like it – and Citi, for one, is already agitating for yet another bail-out without nationalisation. But as the financial chain comes under unprecedented strain, the time has come to take out its weakest links.

FT.com / Markets / On Wall Street: Nationalisation is most likely way out of US banking mess (Francesco Guererra)

No comments: