We are going to nationalize the banks...

[Kurt_and_Hunter]

We are going to nationalize the banks. The only questions are when and for how long. I hope we do it before exhausting every other terrible option on the way down in the name of anti-socialist awesomeness.

Essentially, the path of least resistance is for the government to give gigantic welfare hand-outs to the owners of failed businesses for no reason other than to show how anti-socialist we are. Call Alanis Morisette because that actually IS ironic.

Stressed for Sauces

Aha — the Times’s dealbook blog supplies exactly the numbers I was looking for. It cites a CreditSights report on the potential losses of major banks — which gives us a guide to the amount of capital the federal government needs to put in to make these banks viable.

Focus just on the big four money center banks: Citi, B of A, Wells Fargo, JPMorgan. According to this estimate, they need around $450 billion. Meanwhile, their combined market cap is only about $200 billion — and part if not all of that market cap surely represents the “Geithner put,” the hope that stockholders will in effect get a handout from the feds.

Given these numbers, it’s extremely hard to rescue these banks without either (a) giving a HUGE handout to current stockholders or (b) effectively taking ownership on the part of we, the people. Of these, (a) would be politically unacceptable as well as bad policy — but the Obama administration isn’t ready to go for (b), because it’s not in our “culture”.

Hence the perplexity of policy. Our best hope right now is that the “stress test” will make (b) inevitable — that Treasury will declare itself shocked, shocked to find that the banks are in such bad financial shape, leaving government receivership unavoidable.

http://krugman.blogs.nytimes.com/2009/02/14/stressed-for-success/