Tuesday, 24 February 2009

Snapshots About Bank Nationalisation in the U.S. By The WSJ

Click here for an interesting article by the WSJ called ''Taking the Nationalisation Route.´´ It contains the basics about nationalisation, the good and evil of it and recent moves by the U.S. government to increase its stake in commercial lenders.

The Wall Street Journal shocked markets yesterday with a report that the U.S. government is mulling taking a 40 percent stake in Citigroup Inc., once upon a time the largest financial services company in the world. According to the report, Citigroup officials are in talks with federal officials to forge a deal that permits the survival of the ailing lender. If discussions fell apart, for any reason (clearly the convenience of taking over such monster would have serious political shortcomings,) the government could wind up holding as much as 40 percent of Citigroup's common stock! The WSJ also said, citing unnamed sources involved in the negotiations, that Citigroup bank executives want a government stake no bigger than 25 percent.

The Obama administration, which hasn't indicated if it supports the plan, has to take a responsible stance here: if some banks failed to assess risks properly and have become a barrier to the entry of new, more risk-conscious players, the government is in the obligation of letting the former fail.
Read our posting yesterday about necessary bankruptcy law efficiencies, and the government's stance on nationalisations.

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