Take a Good Long Look

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February 20, 2009 9:18 a.m.
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This point has been hinted at in the last couple reader emails I’ve posted. But I’ve just been talking to a few knowledgeable observers. And when you step back what stands out most over the last two days is the silence of the administration on the nationalization/receivership question.

Sen. Dodd clearly opened the door to nationalization in an interview with Bloomberg reported this morning. This comes on the heels of Alan Greenspan opening the door to it. And just moments ago Huffington Post reported an interview with Sen. Schumer in which he appears to do more or less the similar, though with a decent amount of caveats and hedging.

These and other comments and developments are driving the value of the big bank stocks down toward their mathematical limit. Citi and BofA have lost another 20% of their value just today. As the reader pointed out earlier, at a certain point this emerging consensus becomes a fait accompli. And as I noted, the administration has been really silent on this.

Is the silence intentional? Because it seems, unmistakably, to be moving this ball forward.

Late Update: Writing about an hour ago, Krugman provides some key context on what’s actually happening here and what it means. These banks are already insolvent. They’ve been able to stay afloat because the markets have believed that the federal government has implicitly guaranteed their obligations. “What’s happening now is a growing sense that the federal government, in return for rescuing these institutions, will demand the same thing a private-sector white knight would have demanded — namely, ownership.”

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