MORE UPDATE: Analysts say nationalisation probably inevitable for BoA and Citigroup :[Link].
UPDATE: Citigroup & Bank Of America stocks keep sinking. Although our govt tells us they are "long term investments", these banks are known by the market now as "zombie banks" [Read Report :The Top 12 U.S. Banks: From Zombies to Hidden Gems]. Leaving taxpayers' money in zombie banks whose value will be wiped out is an irresponsible act. US mutual fund managers and pension funds exited these investments once they got below $5[link]. Not only did they risk our money in bad investments, they now refuse to take it out telling us they are long term investments when all the facts show otherwise. If they leave our money in these banks and the money gets wiped out, it is not an honest mistake....
Revelations in the past few days indicate that there is a good chance that major banks in US will be nationalised. Based on a number of reports the idea to split the banks into good and bad - a solution that will retain some value for stock holders - is probably dead because it cost the tax payers too much and when Obama pushed the stimulus plan he was unable to get a bipartisan deal ....without Republican support a solution that involves trillions will never be passed. It seems that Geithner went public with the half-baked plan a few days ago because his team realised that the "good bank bad bank" idea was a no-go. He replaced it with an idea that involve private sector investors but couldn't get all the details sorted out - like how to get private money on board[Read the story here]. Both solutions the Geithner plan and nationalisation will wipe out or badly dilute existing shareholders including preference shareholders.
The PAP govt insists that our investment in banks are long term investments and despite the heavy losses we will recover our money in 10, 20, 30 years. Putting money in those banks was extremely unwise....and not taking the money out after making a loss may turn out to be a bigger mistake. They have hundreds of people in GIC and Temasek whom they claim are worth their salt .....but if none of them dare to stand up and ask their bosses to cut the losses and save our taxpayers' money...I don't think they are worth anything. To lose billions more because they don't want to admit that those earlier investments were mistakes is unforgiveable. If they don't save what is left of those investments with the facts emerging that it may all be lost, we should never trust these people again with our blood and sweat money.
By Edward Luce and Krishna Guha Published: February 17 2009 19:44 Last updated: February 18 2009 01:07
Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans. Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”. EDITOR’S CHOICE In depth: Obama’s first 100 days - Jan-28Obama acts to cut risk of foreclosures - Feb-17US homebuilder confidence remains near low - Feb-17Californian dream turns into nightmare - Feb-17Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received. “You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.” Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham. Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading. “They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.” Administration officials acknowledge that the rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalisation of some weak banks. The plan sets out a framework for revealing the extent of the likely credit losses facing banks. Most private sector analysts believe the exercise will reveal that some banks have large capital shortfalls. Policymakers acknowledge that if this is indeed the case, it will be difficult for those with the largest shortfalls to raise the required equity from the markets, in which case the government would probably have to take temporary control. Moreover, while nationalisation remains taboo in some political circles it is increasingly openly discussed among past and present economic policymakers of all leanings. “In this country nationalisation of some banks – not the whole banking sector – should be a last resort, but it should definitely now be on the table,” said David Walker, head of the pro-free market Peterson Institute and a former senior official in the George W. Bush administration. The time for biting the bullet may also be fast approaching. In early April, big institutions will publish their first-quarter results. If the intervening Treasury stress tests have not by then revealed the true state of their balance sheets, then their first-quarter results may do so. “The first week in April – that’s when the children’s party is over,” says Chris Whalen, co-founder of Institutional Risk Analytics. “That is when the obvious will become apparent.” The Obama administration remains opposed to federal control. Mr Geithner last week said: “Governments are terrible managers of bad assets.” Others say he may eventually face no choice. “The danger we face is a Freddie Mac/Fannie Mae scenario where government gives the banking sector guarantees and then socialises the losses,” says Adam Posen, an economist. “That’s the worst thing we could do.”