I’ve been wary of nationalization because, while I think there’s some logic to it, I question the idea of completely wiping out shareholders.

Isn’t it pretty much agreed that without the money the government has already pumped in, most of the big banks are basically insolvent?

If you accept that premise, what good reason is there that stockholders shouldn’t be completely wiped out?

it seems like we’re just prolonging the inevitable … at a cost of billions.

Basically, it seems like an action like that could create a domino effect that would send the Dow spiraling out of control.

Looked at the markets lately? What do you think is happening NOW? The markets are reeling because there is NO indication from the admin that they will do anything even remotely intelligent to liquidate the toxic book assets out there, a necessary prerequisite to stabilizing the credit markets.

Indeed, they seem to be doing their best to make things worse.

Plain old boring bail-outs would cost trillions. Even if we just loaned the bail-out money we’d still need to find several trillion in cash.

Which leaves bankruptcy. Bankruptcy always zeroes out the shareholders. So unless Isaac or some other smart person can come up with another option the shareholders will be zeroed out. Wallstreet may be spooked and panic. But if that’s going to happen it’s apparently inevitable. But bankruptcy isn’t even being discussed — these banks are apparently too big to fail.

I’m not convinced that there isn’t a huge talent pool of potential bank managers waiting in the wings. The thing you have to keep in mind is that if there are only three banks there can be only three bank CEOs. So it’s pretty much inevitable that lots of people as good, or better, than current management aren’t in current management. Besides the CEO who saves Citibank will still be CEO when the salary cap disappears.

The complication argument doesn’t make much sense to me either. If they weren’t a mess Obama wouldn’t even be considering nationalization. And if the government owns these banks it can sell bits of them off, which simplifies things considerably.

I agree that this sucks. Lots. It isn’t ideal. Unfortunately as far as I can tell nationalization is the least stupid option. Bailing them out would take literally trillions, which we don’t have, and we can’t borrow. The finance dudes are pretty convinced we can’t let these go into bankruptcy.

If somebody has a third option I’m open to it. Until somebody presents such an option we’re stuck. The choices are nationalize now or nationalize later. I’d prefer now. Get it over with.

Issac’s argument hinges on the faulty assumption that the banks must remain big banks, and Trescml hits the nail on the head. Take them over, break them up and then sell them back into private hands.

Issac says that if we nationalize a bank it will be forced, both by the regulators and the marketplace, to shrink dramatically. ANd that’s a bad thing, why? That is exactly what needs to be done. I am getting tired of saying it–if it is too big to fail, it is too big to exist. That applies to banks, the auto industry, insurance companies….

His second argument, that we don’t have a good exist strategy once again rests on the premise that when the government is done ridding the banks of the toxic assets that the bank needs to be returned to private hands as they nw stand…that’s absurd. We will be right back where we started from. Furthermore, our current path of shoveling money at the banks leaves the same people in charge and probes to them that they need not worry about taking risks because the government will them out. That’s insane.

And that leads us to his third, most idiotic point… he asks who will run these companies when we dismiss the existing senior managers and board members? So, he argues, we need to shovel money at the banks to keep the same crooks an incompetents in thier plush seats while enjoying bonuses for driving the economy into the ground.

Yeah, Issac, you know what you’re talking about.