Illinois Gov. Pat Quinn, who was elevated to that post from lieutenant governor when Blago was impeached, is calling on Sen. Roland Burris to resign:
There seems to be a pretty clear realization now that the hammering the big bank stocks are taking over the last few days is not simply a matter of their battered economic condition but more
immediately because of the growing likelihood of nationalization. But buried down in an article in today’s Journal is this.
At a senior leadership meeting yesterday, Bank of America CEO Ken Lewis told bank leaders (according to a source in the room) that government officials have assured him that nationalization “isn’t on the table.”
He said “he has [also] urged the government to say this publicly.”
I’ll bet he has.
Now, under the present circumstances, I would not take anything Mr. Lewis says at face value. But the comment can speak for itself.
Huffington Post: “John Gibson Did Not Compare Eric Holder To Monkey With Bright Blue Scrotum.”
The Washington Post ombudsman has responded to the outcry over George Will’s faulty global warming column.
A TPM Reader comments …
In an interview with Bloomberg set to air later today, Chris Dodd was reportedly asked about nationalization. The powerful Senate Banking Chair did something unexpected – he spoke the blunt truth:
“I don’t welcome that at all,” he said, “but I could see how it’s possible it may happen. I’m concerned that we may end up having to do that, at least for a short time.”
There’s an interesting dynamic at work here. Nationalization is a self-fulfilling prophecy. Investors, convinced that it’s coming, are dumping bank stocks. Uncertainty is making it difficult for the most troubled banks to finance their operations. Their stock prices are
routinely setting new lows – Citi and Bank of America both lost about a fifth of their remaining value on Dodd’s comments. That’s why Ken Lewis is pushing back. Unless something dramatic is done to convince investors that nationalization is not in the offing, it becomes the only solution. But, as Lewis has discovered, no public figure is going to step forward and take it off the table at this pivotal juncture.Now that Dodd has publicly mooted the notion, it’s probably picked up too much momentum to be stopped. What was politically unfeasible just months ago is now inevitable. By the time the government steps in, it’s as likely to be met with as much relief as opposition.
From TPM Reader JP …
Please stop using the highly inaccurate term “nationalization” which connotes permanent government takeover of the banks. The correct term is receivership, which is by definition temporary and a routine staple of our capitalist economy and banking regulatory system. Using the term nationalization plays into the propaganda of the far right.
As I’ve said a number of times, the term ‘nationalization’ at best confuses the issue, for pretty much the reasons JP says. I’m inclined to say that I don’t want to further confuse the issue by using a different term when this is the one everyone is using already. But perhaps JP has a better point than I realize.
The key is that financial reorganization of failed companies — whether it’s receivership, or bankruptcy proceedings, or something else like it — is textbook rule of law capitalism. If you’re a real free marketeer the real departure is keeping failed companies afloat with a perpetual taxpayer IV line, socializing all the losses and leaving all the upside with people who ran their companies into the ground. It’s not just a raw deal for taxpayers. It also keeps the whole economy in idle.
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.”
According to CNBC, BofA CEO Ken Lewis sent a memo out to employees today saying the bank was well capitalized, that the credit markets are easing up and absolutely, positively not to believe the nationalization rumors.
Says Lewis: “Our company continues to be profitable. We see no reason why a company that is profitable with strong levels of capital and liquidity and that continues to lend actively should be considered for nationalization.”
Late Update: It’s a bit unclear now whether this was an internal staff memo or a statement released more broadly.
A bit earlier this afternoon, White House Press Secretary Robert Gibbs made statements which many have taken as pushback against the rising tide of rumors that Citigroup and Bank of America could soon be taken over by the government.
Gibbs said, “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government. That’s been our belief for quite some time, and we continue to have that.”
I’d be curious what others think. But when I heard this, this struck me as a pretty mild response, given how rapidly people seem to be moving toward the belief that these banks are at their last gasps. It’s not completely on point for the question at hand and it refers to preferences not what may actually happen.
To be clear, I would not expect the White House to make definitive statements in such a situation unless they’d really made a clear decision that any sort of government take over of these banks was out of the question — and ruling that out seems crazy under the present circumstances. And no question this is a very delicate messaging situation. But my own take was that these statements do not tell us that much.