We Talk to CNBC About Bank Nationalization Posted on February 21, 2009 by Yves Smith Click here to view the clip from CNBCs’ Fast Money. Enjoy! Post navigation ← Is the Public/Private Plan Inferior to TARP? Links 2/21/09 → Subscribe to Post Comments 44 comments Anonymous February 21, 2009 at 12:41 am Yves, I just watched you appearance on CNBC and I don’t think you were scathing enough. That is why you are asked on these venues and not people like me. Good job. Keep beating the drum for financial rule of law and financial instrument (or lack thereof) sanity. I was wondering what you take was on billmon’s posting on KOS? I thought he did a very credible job.link is here:http://www.dailykos.com/story/2009/2/19/05524/5446/499/699191 Anonymous February 21, 2009 at 12:47 am HEROIC! Unsurprisingly they didn’t even scratch the surface of your understanding of this issue. Typical CNBC facile crap. Why hasn’t the SEC investigated those stock pumpers? Anyway, it was a crisp autumn breeze seeing you on Fast Money Yves. Refreshing! IF February 21, 2009 at 12:50 am CNBC link did not work for me. But it is on youtube:http://www.youtube.com/watch?v=cHXGhjdMQzk bg February 21, 2009 at 12:52 am I LOVED how you framed it as a weekend resolution gone long! Did you get tapped as part of the government PR effort? It was brilliant. Anonymous February 21, 2009 at 12:53 am I thought you did a good job…unfortunately, that was a short segment. That’s ok, we have your website! doc iceberg holiday February 21, 2009 at 1:00 am Yves, WTF, Your to call me before you go on the air … gheeze…, oh, well, good show; nice to see you breaking the ice (again)!! 12:17 am: Third-Class passengers are informed to prepare for the sinking. Crew members bang on doors and shout to wake them up. Meanwhile, First-Class passengers are informed by a gentle knock on the door, and a soothing voice.12:21 am: Third-Class passengers evacuate their bunks, only to find out that they must wait until the First-Class passengers have finished boarding the lifeboats.12:22 am: Thomas Andrews arrives at the Boat-Deck and is amazed at the passengers’ indifference. While the crew is readying the lifeboats, the passengers are inside drinking brandy or tea while the band plays ragtime. FYI: The Titanic was the first Ocean liner to have a swimming pool and a gym. It was constructed with a double hull and 16 water tight compartments, the problem was once one compartment was filled, the water would flow over the TOP to the next compartment. She was designed to stay afloat with any 3 or 4 compartments flooded enabling her to withstand a collision at the joint of any 2 compartments. It was thought that the Olympic class Ocean liners were unsinkable and themselves lifeboats. SN February 21, 2009 at 1:18 am Yves, Great work. You are the clearest writer on financial issues around. So, as a service to the American people, I’d love to see you write something like the following (I know I’d forward it to everyone I know). 1. Why is it thought that the major banks are insolvent? What sorts of things are sitting on the banks’ balance sheets (that we know about and that we suspect)? How would eliminating stock help this? What is it to “give bondholders a haircut” and how would this help? 2. What is the strongest case to be made for not taking over the banks and eliminating stock and giving bondholders a shareholder? Part of this case will involve the impact on retirement savings invested in banks; how might the effects there be ameliorated? 3. What exactly would go on in nationalization? Are there strong cases to oppose this? Why is it a good option? What I have in mind is an econ 101ish post that could serve as a basis for discussion for those around us who don’t spend all their time on bearish blogs. I include CNBC types in the audience for this sort of post; I suspect that many are like my mother: They follow stock prices but know very little about what’s going on behind the curtain. (My mother is much smarter and less morally vicious than the typical CNBC devotee, let me say.) You address many of these issues in pretty much every post. I’d love to have one place I could send people to that sets out all the conceptual territory to be able to participate rationally in arguments about how one should proceed from this point vis-a-vis the banks. So, that’s my request and my case for it. Whether or not it appears, I’ll continue to read you faithfully; I’ve learned much from you. Richard Kline February 21, 2009 at 1:47 am CNBC has airtime to fill; to their surprise, you gave them content. Their bad; your good; the public’s gain. *whheeeeeee!* Talk sense to power . . . the neo-cons and fast operators just don’t know what to do with that. Anonymous February 21, 2009 at 2:01 am Great job Ms. Smith. CNBC are clowns, they are paid by ad media to pump stocks. Almost looked like the Fast Money crew, was snickering. Maybe Tarp 3 and Tarp 4, will make for better commentairy ? Anonymous February 21, 2009 at 2:52 am The Fast Money Crew were snickering which goes to show what a wet behind the ears bunch of rank amateurs they are. Keep up the good work the world needs to see more competent, articulate and intelligent people. Anonymous February 21, 2009 at 2:53 am “Banks live on confidence, and there is precious little coming from the new Treasury secretary,” said Gary B. Townsend, a former federal banking regulator who runs his own investment firm, referring to Timothy F. Geithner. “We are getting only confusion.” Tim Geithner's Mom February 21, 2009 at 2:58 am Question: Is the hidden (true?) problem that the government is afraid of a Lehman-scale event if C and BAC stockholders become zeroed out and the bondholders take substantial haircuts? In other words, what would be the immediate $$$ damage, and what would be the short to medium-term fallout of a C and BAC nationalization/receivership? Is the possible fallout so large that the powers-that-be are playing the “throw money at it and hope against hope that things get better” game? Tim Geithner's Mom February 21, 2009 at 2:58 am Question: Is the hidden (true?) problem that the government is afraid of a Lehman-scale event if C and BAC stockholders become zeroed out and the bondholders take substantial haircuts? In other words, what would be the immediate $$$ damage, and what would be the short to medium-term fallout of a C and BAC nationalization/receivership? Is the possible fallout so large that the powers-that-be are playing the “throw money at it and hope against hope that things get better” game? Anonymous February 21, 2009 at 3:21 am I dont think Obama likes it. If you look around the news and blog, its full scale news control. Anonymous February 21, 2009 at 3:33 am Fannie is nationalized and now fairly worthless but stabilized. Fannie versus Citi Justin February 21, 2009 at 3:50 am Nice guest appearance Yves, too short by far. I hate the fact that complex issues are necessarily reduced to soundbytes – we need an eight hour show rather than appearances that last a few minutes. I do respect Karen Finerman. I’ve spent the last 5 months tracking the trades, she’s done quite well, with good analysis. You have to understand the difference between traders, investors, economists, and regular folks – each with their own priorities, knowledge, and ability to react to global macroeconomic trends. The show is geared to day trading type strategies, but often they have have very good guests (like Yves) that give an informed view on where things are heading. While Fast Money is OK, I tend to gag whenever Kudlow is on. Maybe it has to do with my PhD work in stochastic processes and complexity theory instead of bloviating, windbagging, and arguing strawmen. My gold standard is still Nicholas Nassim Taleb, he truly understands the study of knowledge and lack of knowledge about probabilistic events. Regardless, good show, too short, and don’t forget you’ve got a large audience on the net that values your posts more than you can imagine… Anonymous February 21, 2009 at 5:34 am Nice! And thanks for all the great work you have done. gordon February 21, 2009 at 6:15 am I have to say it – what horrible little men! If that is US television, the net effect is as worthless as, say, Pravda in the 50s or the Nazi press in the 30s. I would think emigration must be a major issue on the agendas of intelligent Americans. John Rosevear February 21, 2009 at 6:47 am Yves, you rock as always. One note: I don’t think present low-seeming FDIC staff levels are necessarily a huge impediment here… I remember when Bank of New England went down in ’91, the FDIC had a big pool of laid-off non-BNE bankers to hire from and managed to staff up in a hurry for what was a huge job. I would think they could do something similar in any financial-center city at the moment. As long as they could muster enough current staff to do the front end of the takeover, they could get through the weekend cycle without extensive up-front hiring. It’d surely take a few weeks of careful advance planning, as you say, but I would not be surprised to hear that that planning is underway right now, though doing both C and BAC on the same weekend seems like a stretch… okl February 21, 2009 at 8:09 am Yves is hot. I would like it better if you scathed the crap out of those politicians and their nonsense lol That’s how TV works… Did I say she’s hot? lol Anonymous February 21, 2009 at 8:57 am Many want or are betting that Nationalization of many major banks is in order. However, when we wiped out the shareholders of Lehman, this initiated the negative feedback loop of Confidence. I still am not sold on wiping out the shareholders in a mark to no market situation and feel that is the worse of the bad decisions for the country since the only evidence we have anywhere, ever of a financial institution of this scale going under is Lehman. Not very empirical. Unless you are short the equity, of course, and that is the end goal to start. More likely many vulture funds are shorting hard so the banks will cough up the assets now for two cents on the dollar and then purchased with proceeds once they close out the short positions.Great for vultures bad for the country. Do not forget when calculating taxpayer cost,, you must calculate the writing off of the assets, since they are paid for by the tax payer, as well as systemic failures. The debate frankly is who will get the taxpayers money. Vultures or the banks. That is the debate, not if the taxpayers will not lose. Stephen Lins February 21, 2009 at 9:36 am Uh oh. I’m sensing an increasing level of male enthusiasm with each TV appearance Yves makes. I only hope she doesn’t go all Hollywood on us. Anonymous February 21, 2009 at 9:49 am Yves, you so outclass those guys. Only on special occasions like this do I watch them. It's painful. I'd forgotten how bad they are. Thank you for the shortfall number in personnel needed to accomplish the job of nationalizing the big 4 banksters now on public welfare life support: The number of FDIC employees required to do the job are now 5,000 compared to the 20,000 that worked on resolving the S&L crises. Bloomberg can use his retraining program for fired finance geniuses to get the job done. LeeAnne Anonymous February 21, 2009 at 9:50 am Yves, you so outclass those guys. Only on special occasions like this do I watch them. It's painful. I'd forgotten how bad they are. Thank you for the shortfall number in personnel needed to accomplish the job of nationalizing the big 4 banksters now on public welfare life support: The number of FDIC employees required to do the job are now 5,000 compared to the 20,000 that worked on resolving the S&L crises. Bloomberg can use his retraining program for fired finance geniuses to get the job done. LeeAnne boomhauer February 21, 2009 at 10:00 am Yves, Watching you on CNBC is like watching a gifted concert pianist forced to play a show with a garage band made up of 15 year old rock star wannabe’s. I salute your efforts to try to bring some sanity into the asylum. eh February 21, 2009 at 11:00 am Bank Nationalization Bad idea. Despite lots of talk about it and tanking stock prices, I’ve not seen any proof that the condition of either of the two likely candidates for nationalization — C and BAC — are actually in such dire straits. S February 21, 2009 at 11:52 am Too bad Mackey wasn’t there. He is the only one with a brain on the entire network, ex santelli. groucho February 21, 2009 at 11:56 am Yves, Nice job on bubblevison! You look great too! Back around 2005,(by 2003 I was 100% convinced that the mortgage bubble would be "the mother of all bubbles")I realized that we would need a SUPER RTC to straighten out the banking system after the bust. Your putting numbers to the mechanics of the repair system(20k personnel S&L period vs 5k currently @ the FDIC) is a most valuable input. Keep up the great work! BTW, is that the proper pronunciation of your name Yves = Eve? Born Again Democrat February 21, 2009 at 12:14 pm So just who are those bond holders in the final analysis? Me and you? European pension funds? Who? Anonymous February 21, 2009 at 12:37 pm Re: "Uh oh. I'm sensing an increasing level of male enthusiasm with each TV appearance Yves makes. I only hope she doesn't go all Hollywood on us." >> I'm writing a script and hoping to cast her soon in a movie. Stephen February 21, 2009 at 1:00 pm Eh, Imagine what would happen if the government announced that BofA and C were no longer going to receive government funding. If you think that means they would continue to survive, then you are correct there is no need for nationalization. If you think they would collapse then better to grab them now. Shareholders take it in the neck because they clearly failed to keep mgt on a leash, board of directors must all be fired with no severance. This is more about accountability than anything ideological Waldo February 21, 2009 at 1:02 pm Yves, great work. That last input of knowledge (FDIC undermanned) before the close of your segment was sanguine and concise. eh February 21, 2009 at 1:05 pm Hi Yves, and again congrats on your deserved increased exposure. I watched the video, and have a few questions about what you said. It seems your basic message is that nationalization is a word fraught with unhelpful connotations, and that what we’re really talking about here is an FDIC takeover and follow-on asset dispensation, a known mechanism, although the FDIC may be understaffed for that right now. But doesn’t the FDIC usually dispose of assets by selling them to other institutions, , usually larger ones? Is that feasible for large banks like C and BAC? Who do you foresee taking over the assets of C and BAC? I did not quite understand the benefit you see in wiping out holders of common stock; what, exactly, are they owed that makes that necessary? During this crisis you’ve (often strongly) criticized govt efforts to help. If it turns out not to be feasible to somehow transfer the assets of C and BAC (e.g.) to other institutions, why do you think the govt could do a better job of running them? bb February 21, 2009 at 2:05 pm Yves,the contents and quality of the site got quite dumbed down since your first appearance on cnbc.is this just out of desire to better accomodate for the intellectual shortcomings of the mainstream audience of this tv channel? eh February 21, 2009 at 2:55 pm @bb: Maybe you could give an example? Especially of the “quite” part. accommodate When you’re saying someone has ‘dumbed down’ their web site, it’s perhaps advisable not to misspell words when doing that. Just a suggestion. Better yet might be: post some erudite commentary yourself in the comments. If it’s good enough, Yves might feature it in a future post — she’s done that before. Anonymous February 21, 2009 at 4:30 pm Excellent clip, Yves. Thank you. A well-deserved round of applause, everybody! Vinny GoldBerg Anonymous February 21, 2009 at 4:45 pm Yves, You are a very smart and sexy woman. Anonymous February 21, 2009 at 5:57 pm Yves, Despite the constraints of the format you communicate your points with impact; thank you for the work you do, day in and day out, to bring some sanity to the debate and enlighten us all. burnside February 21, 2009 at 8:54 pm Good. Prepared range of questions, I presume, and a standard for discouraging interruptions. Substantive content stands out in relief against CNBC norms. Nothing, apparently, you don’t know already. How long before these people attempt cut and thrust? Anonymous February 21, 2009 at 9:08 pm Has anyone read this article yet?http://www.nytimes.com/2009/02/20/business/20lend.html?_r=1 The Obama administration hopes to jump-start this crucial machinery(OUR CREDIT MARKETS) by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans. bb February 22, 2009 at 4:05 am eh,i don’t proof read my typing although i should given that i type in 2 different key layouts and with french and english layouts. if you may wish, pardon my not-so-perfect typing and fat fingering. but substance over form (the examples from this week): 2-3 ambrose e-p articles (links or with some added analysis) circulated lately that clearly lack in the substance and some common sense department, but are ample in sensationalism. typical cnbc type of reporting. the FT’s ‘freudian slip’ that was a clear ‘editorial slip’ on their side and the news was correctly circulated by the NYT and reuters. i enjoy more most the quality of the anaysis and discussions that 90% of the time add substance beyond the headline. Yves Smith February 22, 2009 at 4:17 am bb, I beg to differ with you on Evans-Pritchard. For instance, some readers jumped on him for his estimates for Austrian bank liabilities. His data came from the IMF and was smaller than the amount Austria is now seeking as a rescue package. Evans-Pritchard is over the top, but he was dead on right in calling deflation last summer when everyone was fixated on inflation, and also picks up on data and research that isn’t widely reported elsewhere. I pointed to him very often last summer, you may not have been reading here then. This is NOT sensationalism. I like his work despite his tendency to hyperventilate. And Roubini also hyperventilates, but no one seems to hold that against him any more. As for the FT, that was an unbelievable error from a normally very well run paper, and its lead story on the front page! And it stayed wrong for at least a couple of hours. bb February 22, 2009 at 11:03 am Yves,you are doing outstanding job by all standards. i’d rather read your blog than WSJ or the bulk of FT. at the same time i realize that you cannot be an expert in every area.anyways ambrose is quite biased and people with a clear agenda, like him, have to be taken with a grain of salt and double checked. he’s a journalist and does not have real life experience. he takes numbers and comes up with something that mathematically looks correct, but does not pass a common sense check. Arete February 23, 2009 at 4:12 pm Congrats! Comments are closed. Tip Jar Please Donate or Subscribe!