In essence both of the opinions expressed the same sad thing.

From your response:

“In each of these scenarios we need to be aware that the motives of the government are far different than the motives of private capital. The government is here to serve the public welfare. The private capital is in business to serve the interests of shareholders. Given changed motivations we can only assume that there will be different business practices.

From the WSJ article:

“If the government takes over a bank, management will be under even more pressure to cut costs. Expect more branch closings and poorer customer service. “Think of the bank as the DMV of the future, run by government employees who have little upward mobility,” says Mr. Kaytes.”

I think we can expect that over time, the nationalized banks will be less open to innovation and new product development, more conservative in their approaches, and more constrained in their actions and subject to tighter scrutiny,” says Jim Eckenrode, banking and payments research executive at TowerGroup.”

Everyone will be treated the same, loan rates will be consistent regardless of your credit history, investment rates will be the same regardless of the amount or duration of investment, etc. The taxpayers will end up subsidizing more than they realize as the loan standards will be reduced to meet the lowest common denominator. Consequences for not paying will be relaxed(or forgiven), taking away the incentive to build a solid credit history and/or financial future.

I think this may be what got us into this fix in the first place (with Fannie and Freddie).

After writing my own response to your question, I just saw this article from the Wall Street Journal.
The people there must be monitoring NQ for ideas.

I have yet to compare my reply to this article.

http://online.wsj.com/article/SB123258304319904345.html

Well given that we have never nationalized banks and had them continue operating all I can do is offer my opinion.

We effectively have nationalized banks via the FDIC (Federal Deposit Insurance Corporation) but then paid off the depositors and closed the doors after selling off assets.

That is what I am recommending for institutions that are deemed insolvent. This approach was taken in Sweden in the early 90s and the economy recovered fairly quickly (a few years)

In these instances, the shareholders are effectively wiped out. The creditors (people who have lent money to the banks) would get paid out up to the FDIC limit (250k) for individuals. For institutions which have lent money they would have their repayment largely if not totally guaranteed by the government. Departments or divisions that have value could then either spin themselves off or be sold. After all this is done, shut the doors. The party is over. Why would such draconian steps have to occur? Simply because the losses on loans of all types along with losses on investments will have overwhelmed the capital in the bank.

The government may very well take the step of nationalizing the institution but continue to operate it in hopes of generating revenue to writeoff the losses. What is the risk here? That the losses on the loans and investments just merely get worse and it ends up costing even more money down the road than it would cost right now. This approach was taken in Japan in the 90s and the economy did not turn aroudn for a full decade (it is called The Lost Decade)

In each of these scenarios we need to be aware that the motives of the government are far different than the motives of private capital. The government is here to serve the public welfare. The private capital is in business to serve the interests of shareholders. Given changed motivations we can only assume that there will be different business practices.

Ultimately we are trying to achieve not only stability in the banking system as a whole but growth and increased lending.

Does this make sense? Hope it helps.

Can you explain what the ramifications are if we nationalize US banks?

The strong likelihood that the banking system in the United States has some form of nationalization. These are truly historic and challenging times and how this banking meltdown is handled from here will be both gut wrenching and critically important to our immediate and long term economic health and well being. We will be watching VERY closely.

Thanks so much, remember like you are explaining to a high school student.

Your analysis is well thought out and written.

With money being fungible it is not only difficult but virtually impossible to “pinpoint” exactly where money is directed.

Forward losses of the kind that Roubini is highlighting can only be forecasted based upon an assumed level of defaults on loans.

Is it correct to make the statement that the shadow banking system was the mechanism of the banks to form special purpose vehicles and put the securities in them for long term income. These SPV’s financed these purchases by issuing short term borrowing which had to be renewed. The SPV’s were not regulated, and they had very low reserves.

As the security instruments reputation diminished, the short term money dried up. Hence the SPV had to sell into a fire sale or had to be bring the securities back onto the bank balance sheet. That put the reserve crunch on and is possibly the reason the TARP money is going into the banks and not being used for lending. It is being held in the reserve account.

In short we will never see the banks lend the tarp money. Transparency in the TARP program would shure help. I heard today that the AIG TARP money is going to the counterparties.

Furthermore, could it be Roubini’s comments were based on the number of SPV’s out there and the continued failure of the SPV toxic paper.

Certainly a lot of fog, any insight you have will help.

Up until this election I had NEVER once sent an e-mail or made a call to any of my representatives in Washington. I now do it regularly (granted it has only been a few months) so that I can be on record as sharing my views.

I would think that at some point they may start to recognize my name and then as need be I will follow up with phone calls, including to their local offices.

In the course of his speech this afternoon, President Obama remarked, “those of us who manage the public’s dollars will be held to account–to spend wisely, reform bad habits, and do our business in the light of day–because only then can we restore the vital trust between a people and their government.” I am going to take him up on this.

It sure sounds good to me, and if he delivers, I’ll vote for his re-election. I’ll be joining you in taking him up on it. For my part, I’m going to focus on his healthcare reform. The government created Group Purchasing Organizations that are not being to account. This cost to the system is now a private monopoly, I believe. President Obama could go a long way to restore trust if back room deals like this were revoked. As a cost saving measure, it would make a lot more sense than devoting $50B or so to helping them tighten their monopoly on the healthcare marketplace.

Yes, what a glorious moment for our nation! For now, all across America, millions of parents can say to their young daughters: someday you can’t become president.

An unfortunate truth, I’m afraid.

I would encourage people to aggressively pursue all the options offered. Typically retirement plans have a number of different options.

SAN DIEGO–(BUSINESS WIRE)–Intuit Inc. (Nasdaq: INTU – News) today released the following statement responding to Capitol Hill testimony by Treasury Secretary-designee Tim Geithner regarding his use of TurboTax software. It can be attributed to Dan Maurer, senior vice president and general manager of TurboTax.

Each year, millions of Americans use TurboTax to accurately prepare and file their federal and state tax returns. The software helps taxpayers report their income and find the deductions and credits they’re entitled to claim.

“TurboTax, and all software and in-person tax preparation services, base their calculations on the information users provide when completing their returns. TurboTax also has built-in error-checking tools that routinely catch common taxpayer mistakes.”

That is pathetic. The Treasury Secretary select was claiming he was too incompetent to use TurboTax.

When you aren’t able to decide where to put your retirement money because of the canned retirement plans your employers offer, it is a moot point.

Obama is the poster boy for misogyny and chicanery at any cost to make sure women don’t succeed.

Blacks? Meh. They’ve had Affirmative Action for years. Many of them didn’t care enough to better themselves, hence their shytty statistics for welfare, out of wedlock babies, criminal activity and incarceration, and the general malaise among their group. I’ve worked in public service with many, I do know what I’m talking about.

In fact, if Mr. Affirmative Action president, who doesn’t know enough to use a handkerchief instead of the back of his leather glove to wipe his nose, is any indicator to blacks, they have a long way to go.

Not sure if that helps you but that is the simple basis for one’s approach to the market and investing.