Cui Bono #1:

[jrittenhouse]

Talking Points Memo was going over something that I’ve been wondering - just exactly who is benefiting from the continued un-nationalization of the big zombie banks like Citibank and Bank of America?  Why is there still a stop on this?

Stockholders have already lost most of their equity.  Most depositors are covered by the FDIC.    But the bank’s

Comments

[zurcherart]

Yeah.

[jrittenhouse]

Indeed.

[princejvstin]

Have you heard the recent This American Life program where they explain the Banking Crisis? (its sort of a sequel to the one they did last last year)

http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1285

[jrittenhouse]

ooh, thanks!

[jrittenhouse]

More on the same:

Simon’s theory is that the semi-forced conversion of Citigroup preferred into common shares was taken as a sign that the government may try to force creditors to exchange their bonds for common stock in future bailouts. Preferred shares are not, technically speaking, debt. But they are a lot like debt, and once you finish converting preferred into common, the next layer of the capital structure is subordinated debt. Now, Tim Geithner could come out and say, “Yes, we forced a conversion of preferred into common, but we’re going to stop there and not do the same to creditors.” But no, actually, he can’t say that, because that would constitute an explicit guarantee of all bank liabilities. So the market is left wondering, and we know by now that markets don’t like uncertainty.

[jrittenhouse]

See also:
http://www.salon.com/tech/htww/2009/03/09/nationalizing_citigroup/print.html
and
http://baselinescenario.com/2009/03/09/nationalization-for-beginners/#more-2830

[rmjwell]

Reading the baseline scenario article I was struck by two things.

First, the cavalier use of the phrase "[D]ecisions - which, collectively, shape the flow of capital through the economy - are best entrusted to the free market." I confess to being a financial naif, but wasn't it eight years of "trust the market" that has brought us to this place?

Second, the way the author makes it sound like FDIC protection has a;ways been a given. The FDIC didn't exist until 1933 as a response to the last great "the business of America is business" moment.

[jrittenhouse]

Right on both points.

Re: Uber-wonkish but perhaps helpful

[rmjwell]

When was the last time someone using mark-to-market accounting had things turn out well?