What The President Can't Do?
Henry Blodget has an intelligent article arguing that Bank of America may soon be in need of another bailout, and proposing a Swedish-style nationalization as an alternative. He lays it all out and it’s pretty compelling.
That said, I’m not sure that any of the underlying problems with the early 2009 version of this idea have actually been resolved. [. . .] Blodget['s] proposal, however, is for Geithner to “set a ‘trigger price’ for Bank of America stock” that is kept secret from the public and from Bank of America. Then if the price if breached, Treasury will nationalize the bank and do various things. Nowhere does Blodget note that this would be illegal. My read of the views inside the Treasury Building is that they think illegal seizures of private property would have undesirable impacts.
Consider it your daily reminder that in the American system of government, things generally require coordinated action between the executive branch and Congress to happen. What do you think the prospects are for timely congressional action on a new bank nationalization program? Not good. So we’ll muddle through.
I'm not sure on the legality of the proposal, but consider this proposal regarding Bank of America:
There is a rumor circulated on Wall St. that JP Morgan (NYSE: JPM) will take over Bank of America (NYSE: BAC) within the week. The government will support the deal with a $100 billion investment in preferred shares issued by the combined entity. Alternatively, the government may guarantee the value of a large pool of Bank of America assets. The word is that Treasury Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie Dimon.The “merger” would completely destroy the value of BAC’s common shares.
It's just a rumor of course but it sounds like the type of thing Geithner would hatch. I'm pretty sure that THIS proposal would be illegal, as Geithner does not have $100 billion of funding lying around authorized for those purposes (he does have around $50 billion in free TARP money available). Does Yglesias imagine that Geithner would be worried about the "legalities" of that transaction?
It's funny the things that a President can do when he decides he wants to do them. Let me add that the FDIC can of course put BoA in receivership if BoA is insolvent.
Speaking for me only
|< Earthquake on East Coast | Wednesday Morning Open Thread >|