How does one do these topics justice? I will not try, but I will suggest you pick up the Financial Times all week as they are doing a series on it. The opening article today was a piece from Martin Wolf called “Seeds of its own destruction” and he says the ‘era of financial liberalisation has ended.” The system has FAILED us he says, and to that I would agree. I have written more then a couple of entries on what has FAILED and I am getting close to letting it rip once again… a long blog entry is coming. On the topic of Nationalisation I offer you a couple of articles worth reading. The first is a another piece by Martin Wolfe that was in the FT on the 3/4 called “To nationalise or not to nationalise is the question.” The second piece is one that was in the Times over the weekend by Alan Binder, former Vice Chair of the Federal Reserve. Alan’s piece, called “Nationalize? Hey, Not so FAST“, is where I end up and does a good job describing the key issues. At the end of the day we have effectively nationalised many of our largest financial institutions, and I do not agree with Senator McCain who said today on the news to just let some big banks fail. We cannot. Period. We can wipe our shareholder equity, perhaps even make the bond holders take some pain, but fail? NO. I am not sure if the ‘stress-testing’ will be enough to sort the good from the bad but it is a process and it will allow for some insight/transparency in to the state of these financial institutions. I like the solution that is being followed giving preferred equity to banks that need it that can be converted in to common. I am also in the camp that some good-bank, bad-bank structure is where we will end up.
More on what has failed in this white paper – “Too Big has Failed” by Thomas Hoenig – President of Federal Reserve Bank of Kansas.
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7 pm – I quick add to my earlier entry as this is just in from BASELINE SCENERIO – if you don’t already subscribe to them, you must. Their take on all the talk on what to do about the banking problems and Nationalisation – click here and here.