Wednesday, February 18, 2009

Of Nationalization

Our interest was piqued by reports from Berlin that the German cabinet had approved a bill that would seem to allow for the "forced" nationalization of financial institutions. This action is the beginning of what we see as the eventual framework for government intervention during the subsequent stages of this economic fallout. Granted, public statements made by Bernanke/ Geithner/Congress would seem to indicate that nationalization is off the table. However, please allow us to share with the readers a selected quote from the great Dr. Bernanke himself, taken from comments he made while speaking at a conference in Chicago, on May 18th, 2007.
"We believe the effect of the troubles in the sub-prime sector on the broader housing market will likely be limited, and we do not expect significant spillovers to the rest of the economy or the financial system"
This comment tells us one of two things, that those in charge are either hopelessly incompetent forecasters, or have purposely misinformed the public throughout this entire debacle. Regardless of which assumption you make, one can conclude that any official pronouncements from the Governments as to its future course of action can safely be disregarded. Any assessment of potential investment within the financial sector must be viewed through the lens of nationalization. How long the US Government allows its largest financial institutions to remain insolvent is unknown. However, we can say with some conviction that the balance sheets of the major US banks are impaired beyond the point of repair via private capital raising, accounting trickery, and even Government capital "injections". That being said, our stance should be clear in terms of whether common equity even exists for this country's largest banks.
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1 comment:

  1. I wish that more people held the talking heads (conventional wisdom) accountable as you have done. Imagine a world where people giving out information to the masses where actually held liable for intentional or unintentional negative outcome derived from their chatter:
    A) speaking on something they are not qualified to offer advice
    B) intentionally misleading the masses for personal gain
    C) being an "expert" on any item and only offering past results as a predictor for future outcomes.

    Clearly the world would be a much calmer place since these requirements would banish at least 50% of the false prophets out there now. Granted it would take years to liberate you ears from the remnants of those stupid sound effects crammer the clown makes on his show for "stock picking".

    I hope you continue to give the readers here a shot of reality.