Friday, March 6, 2009

Bank Recapitalization

Should we Nationalize U.S. Banks?

Martin Wolf of the Financial Times in London writes, "Banks are us. Often the debate is conducted as if they can be punished at no cost to ordinary people. But if they have made losses, someone has to bear them. In effect, the decision has been to make taxpayers bear losses that should fall on creditors. Some argue that shareholders should be rescued, too. But, rightly, this has not happened: share prices have indeed collapsed. That is what shareholders are for.

Yet the overwhelming bulk of banking assets are financed through borrowing, not equity. Thus the decision to keep creditors whole has huge implications. If we accept Mr Bernanke’s definition of “nationalisation” as a decision to “wipe out private shareholders”, we can call this activity “socialisation”."

For the pros and cons of "socialisation" click the link below.

(“To nationalise or not to nationalise is the question”, March 4).
More columns at
Read and post comments at Martin Wolf’s blog

Links to other interesting Financial Times articles:

John Kay: How competent bankers can be assisted - Mar-03
Editorial: Public control, not public ownership - Mar-01
Opinion: Epic battle looms over Obama’s big push - Mar-03
Lex: Banks repaying Tarp money - Mar-03
Lex: Taxing carried interest - Mar-03

Brookings Institute paper:

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