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ECONOMIC ANALYSIS:

Thinking About Nationalizations

by Fred Cederholm
We need not fear a full or partial “nationalization” of the Big 20 by Uncle $ugar. This is NO shift to “financial socialism.” It will be but a temporary aberration in our history.
I’ve been thinking about nationalizations. Actually I’ve been thinking about the unfolding recession/depression, the big 20 banks, a peek under “the” TARP, and why any use of the dreaded “N” word is only temporary. Last week’s global economic, financial, and monetary revelations were real doozies. Some were directly exposed via public sound bytes and press releases from the newly elected power brokers seeking to fix things. Others emanated from the old guard corporate elites who created the messes. These latter folks facilitated the frauds and crimes that brought us to the colossal swamp now consuming us, but they are still in the limelight - and in effective control!

You see as bad as things are appearing, we have really only been made privy to a very few of the problems since the beginnings of their disclosures in late August of 2007. The doomsday prophets’ graffiti actually began appearing on the walls (or in my own columns) much earlier in 2004 and 2005. Few in the general public listened (or cared). It is safe to say that any lacking in the painful clarity of how “bad” is “bad” will soon change. Unemployment stats will continue to escalate in the wrong direction, and will do so for the remainder of 2009 - ditto for foreclosures, personal and corporate bankruptcies, Real Estate malaise, and most equity stocks. While important to individuals, these pale in comparison because despite the roughly 6 plus TRILLION in fixes, bailouts, buy outs, guarantees, warehousing repos, and sundry infusion largesse; the financial services industry is still on the rocks. “It” is a long ways from either resolution, or stability!

This dire appraisal needs to be qualified here. If we presume that there are roughly 10,000 financial institutions in the nation, we also need to acknowledge that the mere 20 largest have over 90% of the total US deposits under their stewardship! In the alternative... the other roughly 9,980 banks, etc. have the other 10%. The bulk of these are your community banks which are well run, have been financially prudent, and present no risks of loss or inconvenience to their customer base.

Let’s say “hypothetically” that only 3 or 4 of the big 20 are now in deep doodoo and need to be shut down, recapitalized, restructured, or merged/acquired. THAT implies that somewhere between 20% to 30% of all US deposits are potentially at risk for some “INCONVENIENCIES” (you don’t want to know what THAT implies!)! This is a big number. This is a VERY BIG NUMBER! The driving force behind recent panics has been the financial health of the major money center banks. Materiality of the Wall Street few will always trump “all the Main Streets combined!”

This is a fact of governmental policy life - so get with the program and accept it. This is why we (collectively) will need to monitor the “Capital Injection Program” scheduled for roll out this Wednesday. The levels of these new “injections” will be triggered by the results, revelations, and findings of the comprehensive financial/ forensic audits which are also scheduled to begin in earnest at the Big 20 this week or next. These will take months to complete. (I was part of similar work when I was employed by the FDIC/ RTC on failed banks and S&Ls.) I am already speculating that the results here will be far worse than any of the blackest predictions to date – so brace yourself!

The beltway politicos and financial pundits are already preparing the public for more record setting bailouts and infusions. Use of the dreaded “N” word (as in NATIONALIZATION) is already surfacing in the same sentences with CITI, B of A, and others of the Big 20. This is also coming from the most conservative of Republican circles who have for the most part trashed (or ignored) Obama Administration policies and pronouncements. To date, Treasury Secretary “Timmy the Tiger” Geithner has merely meowed, and not roared! His meows have under-whelmed the financial analysts, and central bankers of the world. Global equity markets responded accordingly - DOWN!

We need not fear a full or partial “nationalization” of the Big 20 by Uncle $ugar. This is NO shift to “financial socialism.” It will be but a temporary aberration in our history. Uncle’s LONG TERM involvement is NOT in the interests of the Federal Reserve Bank owners, the US Treasury, or Wall Street – trust me!

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2008 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.


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This story was published on February 23, 2009.