Watching the Dow is always a questionable metric for evaluating the merits of policy decisions the government announces. But it’s worth looking particularly closely at the reactions of financial stocks, particularly bank stocks — and how the swings in their value are perceived. A real solution to the present crisis probably involves wiping out the shareholders in the bank. So as investors see that on the horizon, if we ever get there, it will only be logical for people to try to unload those stocks.
NYT’s DealBook is reporting that analysts at RBC Capital Markets are proposing what looks a lot like a quasi-nationalization proposal.
‘Nationalization’ is a loaded word. But the key is making insolvent banks face their insolvency, from which a number of steps inevitably follow …
The analysts, including Jon Arfstrom, Jason Arnold, Gerard Cassidy and Joe Morford, suggest that the solution to the bank meltdown is a tough love approach: The government should seize insolvent banks — “of any size,” they write — and pool the worst assets in an investment vehicle akin to the Resolution Trust Corporation, which was formed to mop up the flotsam from the savings and loan debacle.
Why such a harsh prescription?
These analysts think that American banks are still carrying far too many assets at inflated prices, and marking them down to more-realistic values would “overwhelm the capital of the U.S. banking system,” they say.
Yep, that was a punt.
Perhaps they realized that the situation is too fluid and uncertain to come out with a definitive plan that brings us to the post-Economic Crisis promised land. And they may be right in that regard. But I can’t help thinking that this is in some level a punt. Maybe they couldn’t actually come to an agreement on what to do. So they came forward with this.
I’ll be curious what others make of it.
Late Update: In some ways, I think the stalemate interpretation is the most optimistic one, since it suggests that coming up with a sensible plan is still a future option.