The Grey Lady is floating a very significant trial balloon:
I think it's darkly humorous that the first sentence describes a "brief" nationalization as lasting years. If only Great Depression 2.0 would be that brief.
The NYT would not have published this article unless nationalization was the most likely next step. The public has to be psychologically prepped in advance to prevent them from panicking. The article provides a fair analysis but doesn't go far enough. There's no mention of how the nationalization will be funded, but the answer is obvious to those with eyes to see. The Fed will continue to create new currency to buy bad bank debt, which will eventually seep into the economy as extraordinarily high inflation.
The brand name banks we've known for many years will either cease to exist or be transformed into something we won't recognize as banks. Every lending decision and underwriting offer will be heavily politicized from now on, which means that capital allocation decisions in the United States will be subject to brand new criteria. Money will flow to corporations and municipal projects based not on risk/return assessments but on patronage and redress of constituent grievances. Americans, like ancient Romans, have finally voted themselves the Treasury.
Many of the same "highly talented" people who got their banks into trouble will still be running the new entities, just for a lot less pay. Their new compensation will come largely in the form of vassal/patron relationships: invitations to participate in high society, political rewards, and the like. Anyone who aspires to upward mobility must take note of this new class arrangement. Maybe neo-feudalism won't be so bad once we get used to it.
I'm still short calls on XLF because I doubt that the government will be able to recapitalize banks' capital bases at much higher share prices than we see right now. I'm still long IAU and GDX (with covered calls), because I intend to survive inflation and emerge wealthy.
The argument in favor of nationalization, even a brief nationalization of a few months or years, is straightforward: It might be the only way to pull America’s largest financial institutions out of the downward spiral that makes it enormously difficult to raise the capital they need to keep operating.
Right now, many banks are reluctant to write off their bad debts, and absorb huge losses, unless they can first raise enough capital to cushion the blow. But they cannot attract that capital without first purging their balance sheets of the toxic assets. Japan’s experience proved the dangers of that downward swirl; the economy stagnated, new lending ground to a halt and the country’s diplomatic clout shrank with its balance sheets.
I think it's darkly humorous that the first sentence describes a "brief" nationalization as lasting years. If only Great Depression 2.0 would be that brief.
The NYT would not have published this article unless nationalization was the most likely next step. The public has to be psychologically prepped in advance to prevent them from panicking. The article provides a fair analysis but doesn't go far enough. There's no mention of how the nationalization will be funded, but the answer is obvious to those with eyes to see. The Fed will continue to create new currency to buy bad bank debt, which will eventually seep into the economy as extraordinarily high inflation.
The brand name banks we've known for many years will either cease to exist or be transformed into something we won't recognize as banks. Every lending decision and underwriting offer will be heavily politicized from now on, which means that capital allocation decisions in the United States will be subject to brand new criteria. Money will flow to corporations and municipal projects based not on risk/return assessments but on patronage and redress of constituent grievances. Americans, like ancient Romans, have finally voted themselves the Treasury.
Many of the same "highly talented" people who got their banks into trouble will still be running the new entities, just for a lot less pay. Their new compensation will come largely in the form of vassal/patron relationships: invitations to participate in high society, political rewards, and the like. Anyone who aspires to upward mobility must take note of this new class arrangement. Maybe neo-feudalism won't be so bad once we get used to it.
I'm still short calls on XLF because I doubt that the government will be able to recapitalize banks' capital bases at much higher share prices than we see right now. I'm still long IAU and GDX (with covered calls), because I intend to survive inflation and emerge wealthy.
