Bank Nationalization - The Issue May Just Be Logistics - Help Wanted

[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.

Here is a story underscoring this point. There is a a current lack of personnel at the Treasury. One thing to keep in mind is that we are less than two months into the Obama Presidency. While nationalization may be a good idea, you still need a large amount of employees to pull it off, and I think it is telling that the FDIC is hiring like mad.

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

[Median Democrat]

1. MORE - Thanks To Bush - FDIC Had 4,600 Employees, Down From 15,000 Under Clinton

Again, maybe the real issue in Nationalization is that the federal government simply does not have enough people to pull it off right now thanks to Dubya.

http://www.cnbc.com/id/29386854

/snip

We have net household assets in this country of roughly $50 trillion, give or take a bunch of trillions—more take than give probably—a number that's skyrocketed in the last 50 years. The size and complexity of the financial sector has grown even faster. But the SEC is still basically operating on the scale of the 1950s.

And the FDIC is even worse off, especially considering it's hugely expanded role in the current crisis, a role that will probably (hopefully) get even bigger. In 1992 the FDIC had 15,000 employees working for it. At the end of 2007 it had merely 4,600 employees.

We've been getting away with operating on the cheap for decades, but now it's killing us.

/snip

[marketcrazy1]

2. I think the real problem with nationalization

is Derivatives. outright nationalization would be a "credit event" triggering the payout of hundreds of billions of dollars by banks and insurance companies that wrote credit default swaps against the debt of troubled banks, and the money for this is not there! the counter party crisis that would ensue would be staggering.. nationalization would bring down a whole host of institutions and the government simply cannot afford to save them all. so there will be no nationalization in the strictest sense. it will be called something else so as to avoid it being considered a "credit event"

[Median Democrat]

3. Yet, Why Isn't This Or The Logistics Discussed? Mostly, Its Discussed As A Philosophical Issue

Even Paul Krugman discusses nationalization as a theoretical idea, but does not address the consequences of such a step. I can see derivatives being a problem, but this is not mentioned. Likewise, does the federal government even have the resources to take over both BofA and Citibank? Thanks to Bush, employees at the FDIC dwindled from 15,000 under Clinton to 4,500 or so last year.
Thus, I see the logistics as a real impediment to nationalization that is rarely discussed.

[Javaman]

4. Well, nationalization would certainly put a lot of people back to work.

on that basis alone, I'm for it.

[Median Democrat]

5. What Bothers Me Is That It Is Discussed As A Panacea, Its Not...

There are a broad number of reasons why bank nationalization is not an easy cure that could be implemented immediately, as suggested by Krugman.

1. Who will do it? You need people to run a freakin bank, and the FDIC announced in late 2008 that it was hiring about 2000 people, and it likely will need many more to take on the nationalization of Citibank.

2. What about other banks? Once the US nationalizes one bank, citibank, then this will affect other banks, as investors dump banking shares all around, which impairs their ability to raise capital.

3. How do you run it? Citibank is huge. How do you run it as a federally owned entity? Does the federal government start making construction loans? Does the federal government start offering credit cards?

In other words, the logistical hurdles are mind-boggling. Personally, I don't be-grudge the Obama administration for not pulling a Bush, and immediately nationalizing banks.

[Javaman]

6. It would be a monumental task, to say the very least.

if they were to do such a thing, there would be a sudden up tick in the governmental hiring. That would be a sign.

but you are right, it wouldn't be like herding cats, it would be like herding tigers on crack.

I think the first sign would be a bank holiday. or successive bank holidays. Then followed by absorbing the employees of the banks and putting them to work to sort things out.

it would certainly be, something wholly unprecedented.