TPM Reader AC reacts to ‘Scary Nationalization‘ …
Rick’s conclusion that “nationalization” would remove shareholders’ chance of recovering their losses misses two important points. First, the only reason that the 90% to 95% losses that many have taken is not 100% is because of the chance that the feds bail out the banks but leave some equity outstanding (e.g., the 40% Citi solution). This, of course, is just a transfer of wealth from taxpayers to bank shareholders–like Paulson’s funding of Citi greater than their market cap, to take meaningfully less than a 100% stake. The second point that he misses is that if it’s just about keeping some money in the game with a chance of a recovery, bank investors can always sell their remaining investment in banks and put the funds in another investment with a chance of growth. The only thing that makes the bank investment more attractive than any other equally high risk investment is the chance that the bank investors will get a free transfer of wealth from taxpayers. With apologies for the double-negative, Rick’s “leaving the equity in the game” argument is no reason not to temporarily nationalize the banks.
