Obama’s Form of Nationalization

Over the weekend, Obama and his Economic Advisors had a closed-door meeting in the White House. I’m sure it went something like this –

Did you see that the Government of Iceland was just got thrown out of office by an angry mob of citizens who saw their lifesavings wiped out because the banks were allowed to get so highly leveraged that they bankrupt the entire country?

Yes. I’m not giving up my perks. We need to start buying bank stocks.

That was the conversation. Pelosi so much as stated that TARP Round 3 will focus on buying the Common Stocks of Banks. They haven’t even started spending the 2nd Round of TARP (the next $350 Billion) and they are already telling us that they will need more money to “recapitalize” the Banks (and the Mortgage Agencies and the Automakers and the Insurance Companies and the Home Builders and the Commercial Real Estate Owners and whoever else gives them enough extortion kickbacks, I mean political contributions…)

That’s right, the Federal Government is getting into the business of BUYING STOCK! No more phantom “President’s Working Group” or “Plunge Protection Team” conspiracy theories, Pelosi flat out stated that they are considering buying stock. They will buy stock. How long do you think it will be before they realize that they can increase the amount of money they can spend (power) by artificially inflating stock prices?

Buying over-priced Common Stock of insolvent banks with somebody else’s (the taxpayers’) money. That is Obama’s version of “Change”. It is “change”, because Bush chose to buy over-priced Preferred Stock of insolvent banks with somebody else’s money…

Why They Have to Do It
Do you remember what happened last year when Freddie and Fannie were on the brink?
Lots of bank stocks nose dived, because everybody figured out that the banks had loaded up their balance sheets with the Preferred Stocks of Freddie and Fannie. They did so, because the Fed told that these shares were “safe” and could be used as collateral for lending.

Then Freddie and Fannie became insolvent and were pseudo-nationalized and the prices of their Preferred Stocks plummeted. This was a very bad day for Banks and little old ladies.

If the Government decides that it is time to nationalize the large banks with massive derivative exposure, then they will have to price the Preferred Stock of those banks at zero. That would wipe out the remaining equity of a huge swath of the rest of the banks in the banking system and the Fed would have to nationalize them as well.

The other issue is that the US Treasury (via the Federal Reserve Bank of New York, under the watchful eye of now Treasury Secretary Geithner) has recently bought upwards of $400 Billion in Preferred Stock from Banks, Freddie, Fannie and AIG (remember them).

Do you think that the government wants to take a $300+ Billion loss just a few months after they spent the first $350 of TARP, have just as they are accessing the second $350 Billion of TARP, the $200 Billion they promised Freddie and the $200 Billion they promised Fannie?

We the Taxpayer are at the mercy of the idiots. Yet again…