On Fri, 20 Feb 2009, SA wrote:
> So that would put Alan Greenspan and Lindsay Graham in the Allende camp?
> [Since they have come out in support of nationalizing banks.]
Which of course shows just how astonishingly rapidly the idea nationalization has moved, in basically one week, from margin to center.
I've been gone on vacation, which is why I haven't been piping in. But watching this transformation, I can't help thinking that Obama couldn't have managed this process better if he'd planned to get people to force him to do it. That famous excerpt, comparing the Swedish and Japanese examples as two poles, one good and one bad, and then saying we having to do the bad one because we just don't have the balls to do the good one... you just couldn't engineer a better piece of goading. It's been attacked everywhere, with people on all parts of the spectrum leaping to make the same obvious conclusion: do the other option! It may be post hoc ergo propter hoc reasoning to make his speech the cause, but it sure didn't hurt, and he himself seemed more than ready, happy even, a mere few days later to say he was "leaning towards the Swedish option." If he didn't start out playing the crowd, he sure seemed to be in swing with it fast. And today the market seems utterly convinced nationalization is coming, driving down bank shares in manner that may make it a fait accompli.
I also realize now that the "preference shares" are no barrier to nationalization at all. I first thought they were, because the first reports were that they would be convertible after 7 years. But, as I'm sure everyone else has noticed since, there is no such limit. Rather the plan as presently sketched on the treasury website is for them to become instantly convertible on request. And not only future injections, but all past injections. Even without injecting another penny into Citibank, we already have $45B that with a wave of a hand could suddenly become common equity.
Which leads us to the last thing, which I hadn't really realized before the (remarkable) Dodd amendment: all these TARP bank agreements are unilaterally and retroactively amendable by the government. The Congress can change the rules any way they want and it will apply to all 350 banks that took the money in the first place.
So whether it was planned or not, we seem to be accelerating towards nationalization, and a groundwork, both political and administrative, seems to be being laid.
Michael