Bank Nationalization - The Issue May Just Be Logistics

[Median Democrat]

I know that a consensus is developing on the left, with some folks on the right, that nationalization may be the way to go. So, what's holding things up?

Easy. Logistics. NPR did a story that the FDIC is hiring people as fast as it can, but it still cannot keep up with demand. Taking over a Citi or a BofA would require an amazing number of federal employees to take over such a bank.

So, why keep things quiet in the meantime. Why not acknowledge that nationalization is probable?
Well, you cannot announce nationalization or discuss it ahead of time. Why? Because doing so would cause the value of stock shares to tumble, and people at the bank to start to flee, etc. In other words, having an open dialogue on bank nationalization by the White House would pre-ordain the result of the discussion.

More likely, on some yet to be determined Friday evening, after much secret planning and preparation, including the ongoing hiring of massive amounts of FDIC employees, you quietly take over on a weekend. Also, the government would need to take over other banks in similar financial straits, because taking over Citi would increase fears that BofA would be taken over.

In other words, taking over banks requires a huge FDIC workforce, and if the NPR story is correct, this process is ongoing.

Edit: Here is a story underscoring this point. There is a lack of personnel at the Treasury.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/01/AR2009030101747.html

[wiggs]

1. Heard from people who talk to people that nationalization is being held

up because of massive unadvertised debt and toxic assets these banks are holding. Buying into them may be a no win..they are going down no matter what. This is not insider info, sounds more like guesswork of experts in the field.

The answer, according to these guys, is to simply open a new federal bank that would lend as needed without the burden of existing trillions upon trillions of debt. Some major banks would fail, but lending would start again. This appears cleaner than nationalizing an existing bank, accepting it's debt, then trying to lend while possessing its diseased body.

Not sure I buy that we're not nationalizing banks in these desperate times just because of manpower shortage....that's what the FDIC's job is: to be ready for these things. And there's clear indication that industry knew this was coming at least two years ago.

[backscatter712]

2. The whole point of nationalization, or more correctly, receivership...

It's a form of bankruptcy, except instead of liquidating the big banks, which would lead to total protonic reversal of the entire economy, the bank's placed under government control, the government picks all the rotten meat off the carcass, while at the same time guaranteeing deposits and making sure the branch offices are open for business so depositors don't lose everything in their bank accounts.

All that toxic paper's going to have to be written off. There's no way around it. The bank can't do it on its own in the private sector - it's insolvent and guaranteed to close if it does, taking the depositor's assets with it. The whole point is to provide security for the depositors while cutting the rotten meat off the carcass, and then to build a new bank with what's left of the carcass of the old bank.

Correct me if I'm wrong on this.

[earcandle]

3. how do I sign up for work? taking Auditing this semester, 30 years experience in debits/credits...

anybody know if there is a San Francisco link for jobs working
for the nationalized banks? 

[Phx_Dem]

4. It seems kinda stupid that they would get rid of the front-line workers.

Why not just remove the senior level managers. They're the ones who call the shots and make the bad decisions. Why fire a bunch of tellers and loan officers, just to put them on unemployment rolls?

[Median Democrat]

5. Citigroup Employs About 300,000 Employees...

Even assuming you that only 1 percent are senioer level management types, which is very low, that is still about 3,000 folks who need to be replaced.

To put this in perspective, thanks to Bush, the FDIC's employees shrunk from 15,000 under Bill Clinton to 4,750 under Bush in 2007.

So, there is no easy way that the FDIC could go in, and take over Citibank even if it wanted to. Even assuming the FDIC staff has grown, which it has, there is no simple logistic way for the feds to do a Nationalization.

The US would essentially need to draft an army of financial professionals who could sweep in, and take over senior management level responsibilities.