January 15, 2009
The Third Bailout Step: Pure Nationalization?
Posted by David Zaring

As rumors swirl that BofA and Citibank (which would leave just one do-everthing bank left in the US: JPMorgan, depending on how you feel about Wells Fargo) are both headed for conservatorship (here is Sheila Bair's denial, and it's the FDIC who would have to do it), one wonders if the recent request for the second tranche of the TARP led people to believe that the government was contemplating big and bold new bailout moves.  I'm amazed by the hammering both banks stock prices have taken this week, but it is hard to say whether the pessimists are reading political tea leaves, or ignoring them. 

Think of the real difficulties involved in getting nationalization done by the executive branch right now.  Geithner isn't getting a hearing until after the inauguration, the FDIC would have a hard time doing this by itself (take both banks?  with what?), and there's literally only two and a half business days left for Paulson and Bernanke to swing into action.  Plus Treasury is out of TARP money.  Plus the Fed wants out of the discount window game.  The financial regulators have acted in a hurry during the entirety of the crisis, but it seems like every facet of the government is currently in a place indisposed for the sort of quick action predicted by the current rumors.  And Washington is busy getting ready for its largest party ever, one that cannot be rescheduled.  What happens if a conservatorship can't?

If I was betting, I would bet against a nationalization ... at least until next Thursday.

Bonus reading: nice, albeit conflicting, reviews of the TARP-so-far by Posner and Davidoff.

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