U.S. Lawmakers Clash Over Nationalizing Banks to Stem Declines

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http://www.bloomberg.com/apps/news?pid=20601103 & sid=aR6hS.HsqHc4 & refer=us

U.S. Lawmakers Clash Over Nationalizing Banks to Stem Declines

By Alison Vekshin

Feb. 21 (Bloomberg) -- U.S. Senate and House Democrats who steer financial-industry legislation clashed over having the government take over some banks as a way to help lenders that have been hammered by the worst economic slump in 75 years.

Senate Banking Committee Chairman Dodd said yesterday some banks may have to be taken over for "a short time," and his House counterpart, Financial Services Committee Chairman Barney , along with Republican Senator Jon Kyl rejected having the government step in to run banks.

"I don't welcome that at all, but I could see how it's possible it may happen," Dodd, a Connecticut Democrat, said on Bloomberg Television's "Political Capital with Al Hunt," broadcast this weekend. "I'm concerned that we may end up having to do that, at least for a short time."

Citigroup Inc. and Bank of America Corp., which received $90 billion in U.S. aid in four months, tumbled as much as 36 percent yesterday on concern the U.S. may take over the banks. The Obama administration in response said a "privately held" banking system is the "correct way to go."

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What we are now seeing is the combination of two things:

1) Share value readjustment and

2) Market jitters/investor panic.

Share value is based upon current performance and potential performance. ALL shares in EVERY stock was arguably over-inflated in most cases. It is right and correct that share value should fall to levels more befitting of a company's potential to earn revenue and make profits.

The market is jittery because if the government steps in, it means that they shareholders are likely to get dumped, or else the banks they are invested in will not have the potential to earn as much profit or payout as many dividends as they would like. Thus investors are now dumping stock like crazy. They are trying to sell so that they can still get some money back even though they are already taking huge losses.

Contrary to popular belief, the majority of those invested in the stock market are average working Joes. They have 401Ks, or mutual funds and the like. These people are the ones who are watching their retirements go up in vapor, and they will be the ones that hurt the most if they are invested in financial institutions and if banks are nationalized.

What this bill threatens to do is to wipe out the savings of millions of Americans even as it attempts to protect the savings of millions of Americans.

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Dodd, a Connecticut Democrat, also said Treasury Secretary Geithner has "an awful lot of leeway" in interpreting how the executive compensation restrictions he wrote into the economic stimulus legislation will be applied for banks that take federal aid.

Dodd's statement gives Geithner the flexibility to say the rules don't apply to firms that participate in the public-private partnership Treasury announced Feb. 10 to buy banks' toxic assets, but only to companies that get cash injections under the Troubled Asset Relief Program.

Treasury Questions

"That's one the Treasury has to respond to," Dodd said. "That's the kind of question that really ought to be reserved for them."

Dodd softened his Feb. 5 opposition to nationalizing U.S. banks, when he told reporters he didn't think it was time for the government to take over Bank of America, which had fallen to the lowest level in New York trading since 1984.

A possible government takeover has gained support. Former Federal Reserve Chairman Alan Greenspan told the Financial Times this week that the U.S. may have to temporarily nationalize some banks until the industry is restructured. Republican Senator Lindsey Graham, a member of the Budget Committee, said on ABC's "This Week" Feb. 15 he wouldn't reject the idea of nationalizing the banks.

The Obama administration turned aside questions about a U.S. takeover of banks, saying a "privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House spokesman Gibbs said yesterday at a briefing. "That's been our belief for quite some time and we continue to have that."

, Kyl

, a Massachusetts Democrat who heads the House panel that crafts banking legislation and often collaborates with Dodd, said he didn't see the likelihood U.S. banks would be nationalized, and Geithner's bank bailout plan should be given time to take effect.

"If that works, then we don't have to go beyond it," said in a telephone interview yesterday.

Senator Jon Kyl, the second-ranking Republican and a member of the Finance Committee, agreed with , saying nationalizing U.S. banks is "out of the question" and isn't going to happen.

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What the government would be doing by nationalizing the banks is creating the illusion that the banks are stable. I say that it is an illusion for one reason only: Technically speaking, the US government is bankrupt. At present, the only way it can pay off its debts EVER is to start printing off money and giving it to the people they owe. Do we really want this sort of government guaranteeing the assets of those few Americans who DID save their money and use it responsibly?

Here is what has happened in a nutshell: A bunch of idiots bought homes that wre more than they could afford and filled it up with furnature and other things they could not afford, and what they did not borrow from banks, they put on their credit cards. When all these people defaulted, the banks foreclosed on them. The debt incurred is literally in the trillions of dollars, and that is what the government now proposes to pay out to get us all out of this mess.

Here is an alternative solution: Why not BILL all those who defaulted on their mortgages and credit cards and auto loans, and if they cannot pay, put them in work camps, or make them build roads or something for pay until their debts are paid off? Every government project that needs to be done, they can be put to work on. That would save the government billions of dollars in labor costs with professional unionized contractors, it would bust the unions, it would get infrastructure projects taken care of, and it would allow people to earn money in a dignified way rather than sop off the money I earned and prudently saved.

But of course, the majority of voters are the ones who cayused this mess, so instead they are going to TAX those who were fiscally responsible and who invested wisely and use this money to expand the bubble of debt even further by creating the illusion of a solid financial system.

This effort will cost trillions of dollars and will not do one single thing to solve this crisis.

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"I don't think it's something the market has to worry about," Kyl, an Arizona Republican, said yesterday in a telephone interview, after Dodd spoke. "There are plenty of tools that we have short of that to deal with the crisis."

Bank Shares Tumble

Citigroup tumbled 22 percent yesterday, to $1.95, the lowest in 18 years. Bank of America, the biggest bank by assets with $883 billion in deposits, recouped most of a 36 percent loss after Chief Executive Officer said the bank can survive "on our own." The KBW Bank Index of 26 companies fell for a sixth day, extending its decline this year to 51 percent.

Dodd said the executive-pay restrictions on banks that get TARP funds are necessary to draw taxpayer support for more government action.

"As long as they think their money is being squandered on bonuses or super salaries at a point like this, the job of getting people to support what we need to do is going to be that much more difficult," Dodd said.

Dodd wrote a provision into the $787 billion stimulus bill that restricts bonuses for senior executives and the next top 20 employees at companies getting more than $500 million from the government rescue package. Limits on bonuses apply to other companies on a sliding scale based on how much aid they received.

Dodd said additional aid to the automobile industry should come from TARP, as there is "zero" tolerance in Congress to offer more funding for the government aid program.

General Motors Corp., the biggest U.S. carmaker, or Chrysler LLC could end up being forced into a merger, or a prepackaged bankruptcy filing, Dodd said. "I'm fearful it might turn into just a liquidation," he said.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@....

Last Updated: February 21, 2009 00:01 EST