Bank nationalization new boogeyman

by Al Portner

Bank Nationalization is the new national boogeyman. If the largest banks are beyond repair, the government might have to take temporary ownership of some of them. Most depositors would be minimally affected. Investors (including large institutional funds) would lose their investments.

Sen. Chris Dodd intimated several large banks might require this to achieve stability. Market reaction was immediate. Shares values in Bank of America and Citigroup tumbled up to 25 percent in minutes.

The White House quickly reassured markets it favors private banks, but didn't absolutely rule out later action. Stocks reflexively recovered some of their lost value.

The root the banking crisis is probable over-valuation of toxic loan assets brought on by a lack of oversight. TARP was necessary because a very few large financial institutions were deemed “too large to fail.”

The $700 billion TARP program addressed this concern. So far, TARP has not worked as presented by Bush Treasury Secretary Paulson. Worse, banks refused to disclose what they did with their first $350 billion allotment.

A process, currently ongoing, will evaluate bank toxic assets before more taxpayer money is expended. Nationalization will hurt investors and should be avoided if possible, but it also presents an opportunity for taxpayers to recover emergency funding and for the government to break up any “institution too large to fail.”

Huge financial institutions may appear more efficient. They operate at the speed of light. Consequences of systemic errors can be catestrophic. They are also remote from most people who depend on them. Perhaps they should to slow down a tad. Perhaps financial markets need reasonable regulation. Completely free markets tend to implode on themselves in ever new and innovative ways.

Your thoughts on this and any other previous postings are always welcome.

Al Portner is a former daily newspaper editor and publisher of newspapers in seven states. He is the proprietor of The Assignment Desk, LLC, an editorial services consortium.

Portner is also the author of the forthcoming non-fiction book “Mark Twain and the Tale of Grant’s Memoir.” He can be reached at alanportner@theassignmentdesk.net. The Assignment Desk URL address is http://www.theassignmentdesk.net/.