Gillian Tett: Washington is talking to Swedes about banking crisis solutions

Gillian Tett has written in the Financial Times that the Obama Administration is no talking to the Swedes directly about their solution to the credit crisis, suggesting a openness to potential banking crisis solutions. Next week, Bo Lundgren, now head of the Swedish debt office, but formerly a Deputy Finance Minister under Carl Bildt, is scheduled to meet with American officials in Washington. For those of us who see positives in the Swedish crisis solution, this is positive news

Does Obama have the legal authority to take over Citi?

From Justin Fox of Time Magazine:   FDIC chairman Sheila Bair doesn’t think a full government takeover of Citigroup and other multinational financial institutions is practical or even possible. Here are her reasons, as summarized by Pete Davis: 1. The legal authority to take over large banks does not currently extend to multinational financial conglomerates; 2. The FDIC lacks

Too big has failed

This is the name of a speech made by Kansas City Fed CEO Thomas Hoenig which is creating quite a stir. He makes the following points in his speech

David Beim: Citi is too big to nationalize

Beim was a Professor back when I was at Columbia, although I don’t remember being in any of classes. Before he was a Professor, he worked as an Investment Banker at First Boston and Dillon Read, two white shoe firms that are now defunct, absorbed into Credit Suisse and

Creeping Nationalization

Banks do not have enough tangible common equity to make the grade on Tim Geithner’s stress tests. That means the government will have to step in and bail them out. I will call this creeping nationalization.

Paul Miller of FBR Capital Markets does a good job of explaining the issues at hand here in this video via Bloomberg. The long and short is that banks do not have enough common equity. They are not going to get funds from the capital markets to top that equity up. That means the government will have to step in and dilute common shareholders with taxpayers’ funds — a reality we have seen with Citigroup but that is coming to a bank near you

AIG: the biggest quarterly loss in corporate history

A massive $61.7 billion loss for AIG – that is the quarterly loss for the insurance giant, a record for the world. That comes to a loss of $465 $465,000 every minute of every day in that quarter. The full-year loss comes in over $100 billion.

Nevertheless, the U.S. Government sees AIG as a systemically-important company due to its involvement in the Credit Default Swaps market. Therefore, it has decided to up the ante and continue providing this company with tens of billions more in liquidity.

As I have indicated in a previous post, bailouts are the worst of all potential policy responses. These are large sums that I believe the American people will not support. Either Americans are an incredibly docile lot or we are about to see a sea change in taxpayers’ attitude.

Read below for the details of the losses and bailout

My take on the latest Citigroup bailout

The big news other than GDP falling off a cliff is the confirmation that the Obama Administration is going to bail out Citigroup for a third time.  The market reaction this morning was quite negative, causing index futures to sell off even before the GDP number hit the tape.  Citigroup itself dropped as much as

Did Sweden really nationalize its banks?

Since everyone seems to be talking about nationalization and pointing to Sweden as a model for the future, one should ask whether Sweden actually nationalized anything. No one is talking about outright Hugo Chavez-style expropriation here. The only nationalization I see is what was done in the case of AIG and we know where that led.

I certainly believe the knee-jerk reaction against the ‘N’ word, as Barry Ritholtz calls it, is overwrought and have suggested we dub it pre-privatization. After all, didn’t the word recession come into existence for similar reasons — fear of the ‘D’ word depression.

Back in August, I pointed to Sweden as a model as well. You can read the post, “The Swedish banking crisis response – a model for the future?.” But, the Peterson Institute also has a fine post by Anders Aslund on what really happened in Sweden and it was not nationalization.

Here’s a bit of what he had to say

America needs a pre-privatization plan

UPDATE: This is another re-post given the huge bailout just administered to AIG.

I am coming out in favor of nationalization in the United States. The efforts to fix the banking system to date have failed. As a result, America is still threatened by the menace of systemic risk. In my view, this risk can only be diminished significantly by ‘pre-privatizing’ large, bankrupt institutions. I am talking about temporary nationalization of a few institutions rather than a wholesale longer-term government ownership of the banking sector. I will often use the word ‘pre-privatization’ because the word nationalization conjures up a Hugo Chavez-style asset confiscation which I believe is not accurate and clouds the picture.

Through the pre-privatization of large institutions which are effectively insolvent, trust will be restored, asset prices will find a natural equilibrium level and prudent lending can commence once again. By resisting pre-privatization in any and all forms, the Obama Administration is setting itself up for failure. In that scenario, President Obama might end up looking a lot more like Herbert Hoover than Franklin Roosevelt in American history books

Nationalization talk everywhere

Everybody is talking about nationalization. The latest trigger is the Citi discussions with the U.S. government to convert taxpayers’ preferred shares into common equity.

Below are a few Bloomberg video clips from just this morning where experts including Marc Faber, Peter Hahn and Bloomberg’s Tom Keene talk about nationalization. It is a very controversial issue. Hopefully, these clips will give you different viewpoints on the subject

Citi: looking for as much as a 40% stake from the government

This news is just in from the Wall Street Journal. Obviously, all of the activity we have seen with Citi’s foreign subsidiaries of late has been in preparation for sale or nationalization. I expect this to be the big news when markets open tomorrow. Note: this will mean massive dilution for shareholders, so it is

Yves Smith: Nationalization is what the FDIC is doing every week

Naked Capitalism’s Yves Smith was on Fast Money at CNBC yesterday. She made a number of good points regarding the discussion on nationalization. One that particularly resonated with me was her assertion that the United States is nationalizing one, two or three banks every Friday through the FDIC (see list here)