Nationalise US banks. Investments = 0?

[Sleepyman]

Feb 18, 2009

Nationalise US banks

 

 

Mr Greeenspan said it will be necessary to temporarily nationalise some banks for a swift and orderly restructuring.

 

-- PHOTO: ASSOCIATED PRESS

 

NEW YORK - THE US government may have to temporarily nationalise the country's banks until the sector is reformed, the former chairman of the US Federal Reserve, Alan Greenspan, has said.

In an interview with the Financial Times published on the paper's website on Tuesday, Mr Greeenspan said 'it may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring'.

Long one of the world's most powerful proponents of hands-off financial regulation, Mr Greenspan indicated nationalisation may now be necessary.

'I understand that once in a hundred years this is what you do,' he said. Widely hailed while in office, Mr Greenspan has seen his legacy tarnished since he stepped down in 2006, as critics accuse him of failing to head off the current economic malaise.

'In some cases, the least bad solution is for the government to take temporary control,' he said.

Mr Greenspan's call came as President Barack Obama on Tuesday proclaimed he had begun the work of saving the American dream, as he signed into law a historic US$787-billion (S$1.2 trillion) bill designed to rescue the US economy.

But US stocks plunged on fears the mammoth bill, a new plan to tackle mortgage foreclosures expected on Wednesday and a fresh effort to save decrepit US automakers would not be enough to end the worst economic slump since the 1930s.

Mr Obama, on a visit to Colorado, put his name to what he termed the 'most sweeping' recovery package in US history, which cleared Congress less than a month into his presidency, but with negligible Republican support.

'We have begun the essential work of keeping the American dream alive in our time,' Mr Obama said.

The president, who has been warning darkly of economic 'disaster' without quick government action, adopted a more hopeful tone as he signed the bill, which may have deep implications for the success of his presidency. But US stocks plunged as investors worried whether government action would save the ailing economy, with the Dow Jones Industrial Average down 297.41 points (3.79 per cent) to 7,553.00 at the closing bell. -- AFP

 

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Will Temasek's investments in US banks be totally wiped out when they are nationalised?

[D3badge]

Yes nationalise mean all share holder value at ZERO!!!!!

[Drive_carcar]

If that's what it takes to get the economy back in shape again, it just has to be done. Whether or not GIC/Temasek's investments will become totally worthless is not important at all.

 

The situation is as long as banks are not lending money, economy will get worst, and eventually the whole world's economy might just come to a standstill. Although there's signs that US banks having recetived bailout funds from US govt are starting to lend again, I'm not sure if the pick up rate is fast enough, maybe another with another quarter we'll get a better picture. I'm not sure how many more quarters of contraction would we want to see, but nationalising banks and freeing up capital is the best way forward to stimulate employment and bring the US economy back on track again.

 

Also, nationalising banks may help more people who might face foreclosure in the weeks to come, to keep their roofs over their heads. This would have tremendous effect on consumers' confidence, which in itself is a lot of good.

 

The other possible solution (if they don't want to nationalise banks) might be to "remove" toxic assets from the troubled banks' balance sheet (through buy back or guaranteeing doubtful loans), and with stronger balance sheet, maybe (just maybe) they will be comfortable enough to lend again. Also, with such a plan, there's always the problem of how to value the "toxic assets", there's never a good enough pricetag to start with, and no simple way to value them.

 

Further, I seriously doubt the world's economy have time to go the round about trip. I hope temporary nationalisation - maybe 2 - 3 years (or until everything gets back in shape again) is in the pipeline. No doubt it's difficult to implement, and there's lots of pitfalls along the way, but then again, there's no easy solution to the current crisis.

 

Either that, or the world economy as we know it, will come to a complete standstill.