Will the government take over the banks?

[dcsmart]

THE BANKING crisis is back--and it's now so bad that the U.S. government may be compelled to once again nationalize some the country's biggest financial institutions. It's the latest evidence that the current economic slump will become even more severe--and likely last for years.

Ground zero of the current financial crash is Citigroup, the huge conglomerate created a decade ago thanks to financial deregulation during the Clinton administration. Once hailed as a pacesetting "financial supermarket," Citigroup has become a vast sinkhole that swallowed $7.5 billion from the Abu Dhabi government's investment fund last year-- followed by $45 billion of U.S. taxpayers' money (not counting the $300 billion government guarantee against the banks' losses on dubious assets).

But all this money hasn't stabilized the situation--Citigroup lost $8.3 billion in the fourth quarter of 2008.

The main reason: like virtually every other major U.S. bank, it bought up enormous amounts of mortgages that were packaged into special bonds. These mortgage-backed securities became the basis for ever-greater speculation.

It was all hugely profitable while it lasted. But when the housing bust finally came, the value of those paper assets plunged, and the banks' paper profits from the housing boom soon vaporized.

Mortgage-related losses and other bad debts have made Citigroup technically insolvent. Management is desperately trying to raise cash by splitting the bank in two and selling off chunks of the company at fire-sale prices.

As economist and New York Times columnist Paul Krugman put it, Citigroup is a "zombie bank," kept afloat only by regular injections of government cash. Krugman's proposal: nationalize Citigroup and other failing banks, wiping out their shareholders and taking control, rather than prop up failed managers and banks stock prices through endless streams of government money. Once the banks' balance sheets are cleaned up, Krugman argues, they could be sold off.

Writing about similar developments in Britain, Financial Times columnist Phillip Stephens put it more bluntly: "I cannot think of a more popular policy than shooting the bankers and nationalizing the banks...Come to think of it, it could also be the way to get us out of this mess."
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FULL ARTICLE
http://socialistworker.org/2009/01/23/will-government-take-over-bank

[NOW tense]

1. Honestly

I kinda wish they would.

[On the Road]

2. "Once the Banks are Cleaned Up,

they could be sold off"?

I don't see why a reorganized bank couldn't operate with the government as the sole stockholder. Might be best for the taxpayer and more secure for the industry.