DealZone

The Sum of All Fears

February 24, 2009

MARKETS-STOCKS/Many argue that U.S. banks need to be nationalized, perhaps temporarily, pointing to Sweden’s success in fixing its banking sector. But a growing group of experts is raising alarms, saying that any nationalization cure would be far worse than the banking crisis disease.

In today’s Wall Street Journal, William Isaac, who was chairman of the FDIC from 1981-1985, argues forcefully that nationalizing the biggest U.S. banks is not a viable option. He points out that Sweden is tiny compared with the United States and that the total nationalization effort there involved one bank that had already collapsed. He says that the problems at Citi, Bank of America and perhaps others are too big and difficult to be dealt with through drastic government intervention, particularly one labeled “nationalization.”

Dick Bove, a veteran bank analyst, also thinks government management is a mistake. Nationalized banks would not be dynamic enough to aid the economy in recovery, according to Bove. He also argues that the damage to shareholders would be catastrophic, though certainly in the case of Citigroup, shareholders have already taken most of the hit.

If voices of wisdom aren’t enough for skeptics, the example of AIG may be. AIG is not a bank, but it faces a lot of the same problems that banks do. And nationalization has done little to help the insurer, which has been losing bailout dollars with dizzying speed, and is seeking more cash from the U.S.

The United States’ efforts to fix AIG have done nothing to improve the government’s standing on Wall Street. But then again, continually applying new band-aids to the financial system doesn’t appear to be stopping the bleeding. If nothing else, we now know that both sides of the nationalization argument have a whole lot more evidence of what doesn’t work than what does.

Deals of the Day:

* Roche will likely have to up its bid for the 44 percent of Genentech it does not already own, analysts said after the U.S. biotech group urged shareholders to reject the offer.

* American International Group received bids from MetLife and Axa SA for its American Life Insurance Co unit, Bloomberg reported, citing people familiar with the situation.

* Lehman Brothers Holdings will spin off its venture capital arm into an independent firm, the latest move by the bankrupt securities firm to shed assets and raise cash.

* Commodities trading house Noble Group, the biggest shareholder in Gloucester Coal, has concerns about Gloucester’s proposed merger with fellow Australian miner Whitehaven Coal, Noble said in a statement.

* Spain’s Santander and utility Union Fenosa have renewed talks to sell their 36 percent stake in oil group Cepsa to Abu Dhabi fund IPIC, Expansion reported, citing unnamed energy- sector sources.

* French retailer Carrefour is seeking to buy Seventh Continent in a deal that would make it the first foreign company to enter the Russian retail market since the credit crunch hit local firms

* Privately held mobile email provider Visto has agreed to buy rival Good Technology from struggling Motorola to expand its offering and grow scale in a market dominated by Research in Motion.

* Billionaire investor Carl Icahn raised his stake in independent film and television studio Lions Gate Entertainment Corp to 14.28 percent and may add or oust directors from the company’s board, according to a securities filing made on Monday.

* Boyd Gaming said it was interested in exploring an acquisition of struggling casino operator Station Casinos, which has said it may file for bankruptcy protection.

* Liquidators Hilco Merchant Resources LLC and Gordon Brothers Retail Partners were named as the lead bidder in a bankruptcy auction for U.S. luxury retailer Fortunoff Holdings LLC, according to a person with knowledge of the auction.

* Semiconductor company Exar Corp said it agreed to buy Hifn Inc, a provider of data compression and encryption technology, in a deal valued at about $59 million.

* The Chinese government aims to cut the number of major auto-making groups through mergers to 10 at most from 14, an official newspaper reported, as the global economic crisis adds urgency to restructuring the fragmented sector.

* State-run Life Insurance Corp of India has raised its stake in ICICI Bank by 2.04 percent to 9.38 percent through market purchases, a filing by India’s second largest bank to the stock exchange showed.

* The board of fraud-hit Satyam Computer Services hopes to seek expression of interest from potential bidders by the end of this week, its chairman said.

(PHOTO: A Wall St. sign is seen outside the New York Stock Exchange September 30, 2008.  REUTERS/Lucas Jackson)

Comments
3 comments so far | RSS Comments RSS

Wall Street needs to grow up and stop spreading fear amongst the world investment communities. This entire mess about bank nationalization started with the BIG MOUTHS OF WALL STREET CNBC. Charlie Casporano the Idiot of all idiots reported some weeks back that Bank Of America told him ( an undisclosed source of course) they were being talked to by the feds regarding Nationalization. This is nothing but a BIG FAT LIE. When will journalist learn to be responsible for what they report? I for one am forming a partition to hand over to the SEC as well an attorney to file a Class Action Law Suit against CNBC and its affiliates for Market Manipulation. Wall Street has done more to strip the world of its financial stability than anything seen in history. To sit back on pass judgment on efforts being made by our government is simply WRONG and irresponsible and misleading to say the least. Why are we in this mess to start with? Prospectors and investors armed with Wall Street Investment firms poured trillions of dollars into the housing market, with not enough qualified buyers to purchase the homes, basically anyone with a heart beat was approved. So who is to blame here, if you make it affordable for someone to move into a bigger newer home with payments affordable for a short period of term most people took advantage. This was one of the biggest ponzi schemes ever played out on the entire world. Wall Street and all its brain thrust dreamed up this Collateralized Debt Options (CDO) and Mortgage Backed Securities (MBS) and sold them world wide masked as AAA+++ which means little to no risk kind of like a CD you would purchase in your bank.

So now we are hitting the bottom and all The Brain Thrust on Wall Street can think to do is strip the equity from the very banks they robbed to begin with. That makes allot of since to me. If the media acted more responsible in how they covered the markets maybe this mess would not have gotten to this point. Insiders trading against companies betting they are going down aided by the media to ensure the desired results. Sounds like a scheme to me.

The Wall Street Elevator ….All aboard and down we go……;)

 

It should be called ‘democratization’ of the banks, NOT ‘nationalization’.

Democracy is the prime order of our time, at this final end of Empire-times, and everything; political, economic, social, and military should come under the sway of democracy —- just as was intended in the American Revolution against the British political, economic, social, and military Empire.

Sovereignty in America is only ‘of the people’ — not of the crown, the banks, the generals, nor CERTAINLY the NON-human corporations!

Using the evasive, guileful, and even propagandistic phrase “nationalization” of the banks (or financial sector) is an extreme media disservice, distortion, and even deceit to the American people.

Instead of this fear/scare term ‘nationalization’ of banks, a truthful and truly democratic media would use the honest term, “democratization of the banking system”.

The bottom line is that the banking system is now one of unchallenged, unelected, and ruthless EMPIRE, and it must be brought into the service of ‘the people’ under the control of our indivisible democracy — just as every aspect of our political, social and economic lives, as free and voluntary members of a self-governing democracy entails of all spheres of our shared lives — except for the separate and non-interfering sphere of religion, as defined in our Constitution.

A free and democratically representative Republic of self-governing people can not allow an uncontrolled Empire to exist within the economic heart of its Republic — else Franklin’s greatest concern will come true, “We have our Republic now, if we can keep it (from Empire)”

Posted by Alan MacDonald | Report as abusive
 

AIG may no longer be a going concern no matter what the government does. Do you know of anyone dying to buy an insurance policy from AIG (no pun intended)? Me either. If they cannot generate new business then the bailout funds will simply go to funding future operating losess. To learn more go to http://www.newyorkshockexchange.com

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/