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...model for nationalizations could prove valuable in the months ahead. The government is in the process of stress-testing the nation's largest banks as part of Treasury Secretary Timothy Geithner's plan to fix the ailing banking sector. And many think the outcome of those tests could lead to more takeovers. So far, Geithner and other officials have denied they are interested in running banks. But in the past few weeks, a number of prominent Republicans and fiscal conservatives, most notably former Federal Reserve chairman Alan Greenspan and Senator Lindsey Graham, have joined those who think the government should...
IndyMac will soon earn the first half of its name back. The Federal Government, which seized the failed bank last summer, is expected to close a deal in the next week that would return the California mortgage lender to private ownership. For IndyMac, the deal means independence in less than eight months. For the government, the IndyMac sale provides a shining example of how takeovers can work, at a time when the Obama Administration may soon begin pushing for more nationalizations. (See 25 people to blame for the financial crisis...
...sure, many economists, and Americans in general, remain firmly against the idea. Some aversion relates to the very word nationalization, which evokes images of socialist regimes seizing private companies. A recent USA Today-Gallup poll found that 57% of Americans are against "temporarily nationalizing U.S. banks." Yet only 44% oppose a less politically threatening version, "temporarily taking [a bank] over...
...debate involves more than semantics. One concern is that investors aren't going to want to hold any bank shares if the government can simply take ownership, effectively rendering the bank's stock worthless or close to it. An even greater concern is that the government won't be able to resell banks it takes over. That would expose taxpayers to big losses and leave Uncle Sam in the banking business for years to come...
...success of IndyMac, though, shows that the government can accomplish its goal in a relatively short period of time. That's not the only evidence that the feds know how to hustle. Since the beginning of 2008, the government has seized 41 failed banks. In nearly all those cases, the FDIC already had buyers lined up for the failed institutions by the time they were taken over. Troubled banks are generally closed on a Friday and given to new owners over the weekend. In most cases, the failed bank's branches reopen with a new name on the door...