Government taking control of financial sector
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As the government buys stock in more banks, more questions from taxpayers and political leaders are beginning to surface. When the government pumps money into financial institutions by buying shares of stock, that effectively nationalizes those institutions.
The feds are using taxpayer money to buy those shares, and Democratic leaders are beginning to ask what taxpayers will get back from their investment. Besides opportunities for homeowners to restructure loans and making banks more eager to lend, the payback for taxpayers is unclear.
Semantics
Government leaders are being very careful with the words they use to describe the process going on. “Bank nationalization” is a politically charged phrase. House of Representatives Speaker Nancy Pelosi emphasized in an interview on ABC that the government is absolutely not considering total ownership of banks and other financial institutions.
“Well, whatever you want to call it. If we are strengthening them, then the American people should get some of the upside of that strengthening. Some people call that nationalization,” Pelosi said.
Obama’s aides have completely steered clear of using the word “nationalization.” They are still considering creating a “bad bank” — basically a nationalized bank that would be a dumping ground for the worst nonperforming loans to get them off banks’ balance sheets.
President Barack Obama and House of Representatives Speaker Nancy Pelosi
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Call it what you want, here’s how it is
As it stands now, taxpayers — via the government — are the biggest shareholders in two of the country’s largest financial institutions, Bank of America and Citigroup. The government owns 6 percent of BofA and 7.8 percent of Citigroup.
Those numbers may look small, but the government has taken on a huge responsibility. Along with their share purchases, the feds have spent hundreds of billions of dollars absorbing the institutions’ toxic assets.
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There hasn’t been a nationalized bank in America since the 1840s, and it didn’t work well even then. There should be some sort of timetable for the buyout of government shares by the banks – every time the US nationalized a bank in the past, it never worked out for the positive. It may be the proper step to take for the moment, as failing to bail out such large financial institutions would be a disaster, as long as it is a temporary measure.