Federal bad bank is a bad idea, says key lawmaker

Obama administration to release comprehensive stabilization plan in 'weeks'

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) - A key lawmaker on Wednesday took issue with proposals under consideration by the Obama administration that could seek to stabilize the financial system by creating a government-backed institution that would buy and hold banks' bad assets.

"A government-backed bad bank that takes the worst, unmanageable assets and transfers it onto the balance sheet of the Federal Reserve is the riskiest of measures from the standpoint of taxpayers," said House Financial Services Committee ranking member Spencer Bachus, R-Ala., after speaking to a Women in Housing and Finance group on Capitol Hill.

Both Bachus and Rep. House Minority Leader John Boehner, R-Ohio, also took issue with the concept of nationalizing some large banks, another concept under consideration by the Obama administration. "I do not see this government nationalizing banks," said Boehner at a press conference. "I'd like to see more transparency and accountability."

Bachus added, "We are a capitalist economy, not a socialist economy."
His comments come as Treasury Secretary-designate Timothy Geithner testified before Congress that the Obama administration will release in the next few weeks a comprehensive stabilization plan that will include programs to restore liquidity to consumer, municipal and small business financing as well as a plan to use government funds for foreclosure mitigation.

The Treasury department is expected to receive the second half of a $700 billion bank bailout fund later this month. Lawmakers in the House on Monday are considering a measure that would impose conditions on the bank bailout funds, however the legislation is not expected to be approved by Congress any time soon because the Senate is not considering a similar measure.

House Financial Services Committee chairman Barney Frank, D-Mass., said he introduced the measure to put public pressure on Geithner to include various conditions including a provision that could require banks receiving capital injections to have a government observer on the bank's board.

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Federal bad bank is a bad idea, says key lawmaker - MarketWatch

jezz nationalize is the only way to stop the crooks...the prez should arrest all bankers and boards of directors and charge them with terrorism. they played the big casino and bet more than the country has in net value...and then get georgie and the rest of the band..my god a bank should be simple,,, loan to those who have some job and some savings, and the rest of the folks just have to rent and save.

This is quite stunning comments from our key lawmaker. Once a bank accepts bailout, good and bad bank are the same. It has been manually reset to a manufactured baseline. No one knows how much it worth any more.

Bachus is playing all sides, Obama should call his bluff and force the banks to return all the TARP money, crash the markets and blame congress for objecting to nationalization of banks.

The banks are already costing the US more in tax money by not nationalizing then by the action its self.

IF the banks are allowed to fall it will send the world into a hard deflationary spiral. This may be ok for savers if they have 10years worth of income as savings. But that may just cause the world to print money untill it hyper-inflates.

This might happen even if the banks are nationalized but at least then we wouldnt be lieing about it. Bailouts or no bailouts the taxpayers are going to get hurt and the citzens will suffer generations because of the uncontroled deficit, morgage, credit and leaveraged spending that has now come to a hard end.

One last round of deficit spending for the road. Last call.

It sure is a very bad idea and it's difficult that any responsible individual would consider this type proposal. What happened to the concept of business management being real leaders and taking responsibility for their actions. They are well compensated and expected to be competent/qualified managers. Many of them often made huge bonuses and what we are now seeing simply is not logical. Few, if any of the poor performers have been terminated and we even see some of the organizations who received government money paying "retention" bonuses. It seems many of these folks should be terminated or encouraged to leave. What we are seeing is madness. Have any of these folks actually run a business or managed one effectively? What happened to the assets? Who failed to perform? What went wrong? What corrective actions have been taken to prevent the reoccurance of the problems? Don't start with solutions.

Posted by Heidi N. Moore

It only takes one good bank-stock rout to turn Americans into big believers in government control.

Yesterday’s precipitous plummet in shares of Bank of America, PNC Financial, State Street and other financials may have done the job; the controversy of the day centers around “bank nationalization,” or giving our government the license to run U.S. banks.

Deal Journal provides a primer on what bank nationalization means to the average taxpayer.

What does bank nationalization mean?

Bank nationalization, in the most practical form, means giving the U.S. government the power to control banks. That could mean taking control of the public shares, to the power to pick and install new management and boards of directors, and set corpotate strategy. The shocks of the credit crisis last fall spurred lawmakers to semi-nationalize the banking sector; nearly 314 institutions have already signed over some of their shares and other securities to the Treasury in return for $350 billion in government aid.

The government has taken a dramatic intermediate step toward nationalization by taking effective control of American International Group, Fannie Mae and Freddie Mac, but leaving some of their shares on the public markets and their management in private hands. Proponents of U.S. bank nationalization now envision a program by which the government would take over only the largest banks, for a short period of time, in order to loosen the ties on lending. The government may also inject more capital into the banks if necessary, but the belief is that the presence of a government overlord acts more as an implied guarantee to soothe customers and prevent assets from going out the door.

Why nationalize banks?

In Western countries, bank nationalization is largely used as an emergency method to prop up banks during tough times, which includes ??a lending to small and medium-sized businesses and restructuring burdensome loans to consumers. It can help big banks avoid immediate insolvencey. Proponents of bank nationalization argue that current government solutions to the financial crisis have failed, in part because lawmakers have committed as much as $8.5 trillion to support programs without seeing a significant difference in the health of banks, public confidence, or an expansion of lending. Many major banks have accepted government funds but have hoarded them to protect against a rainy day or another steep drop in the value of their loans. The government has already provided $40 billion in cash to Bank of America, for instance, and added another $118 billion in support for the bank’s troubled debts. At Tuesday’s closing price, the entire market value of Bank of America was about $25.5 billion, meaning that the cash and guarantees from the Treasury are worth about six times as much as Bank of America itself.

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Deal Journal - WSJ.com : Crisis Q&A: What "Bank Nationalization" Means For You

So what if the banks become nationalized. It won't happen overnight look at AMTRAK and FANNIE and Freddie...

I don't know. I don't think Obama will nationalize right away because will cause massive bank runs... He'll be labeled a socialist and bringing down US capitalism. I think CITI gets bought out by a healthy bank like WFC and life goes on -- no nationalization...

Bush unofficially holds tha titile (socialist) after they nationalized AIG / FNM / FRE etc. Obama will not nationalize and he will be a better president than Bush.

By the way, nationalization means, 'common shareholder gets the shaft'.

Yeah. CITI, BAC, JPM, WFC, GS, FNM, FRE.... are all CAPITALIZED. Well, totally CAPITALIZED. I see it. So does everyone.

Bwaaaaaaaaaaaaaaaaaaaaahhhhhhhhhhhhhhhhhhhhaaaaaaa aaa aaaaaahhhhhhhhh

IF YOU CANT STAND THE HEAT THEN TAKE YOUR COOKIES OUT OF THE OVEN..SHORTY