By Ari Levy Jan. 23 (Bloomberg) --
The U.S. government’s decision to pledge billions of additional dollars with strings attached to Citigroup Inc. and Bank of America Corp. may be nationalization by another name, according to former bankers and regulators.
Faced with pressure from lawmakers, banks have shaken up management, eliminated executive bonuses and staff and canceled conventions. They’ll be forced to do monthly reports on how they’ve boosted lending while slashing quarterly dividends to one cent a share for three years.
“When the Treasury tells a bank to pay a penny a share vs. its old dividend, you know who’s calling the shots,” said Jon Bruss, a 40-year industry veteran and founder of Hartland, Wisconsin-based Fortress Partners Capital Management Ltd., which invests in banks. “It may not be de jure nationalization but I think it’s de facto nationalization.”
Government interventions lead to market distortions which will lead to further government intervention until it is understood that it is the interventions causing the problems in the first place. This is the danger of a mixed economy and democracy. Our economy contains elements of the free market and of political intervention. When something does not go as desired, guess which part gets blamed by the politicians?
The WSJ reported on February 25 that “Bernanke Again Pushes Back Against Nationalization:”
In response to a specific question about Citigroup Inc.’s current woes, Mr. Bernanke told the House Financial Services Committee, “We will see how their test works out and we’ll see what evolves.” Nationalization, he said, misses the point.
Asked if the Citigroup could end up nationalized, Mr. Bernanke said he doesn’t see that happening. “It may be the case that the government will have a substantial minority share in Citi or other banks, but again we have the tools… to make sure that we get the good results we want in terms of improved performance” without the negative effects of a bankruptcy process or seizure, which would be disruptive to the markets, Bernanke said.
He added that he defines nationalization as the government taking over 100% of a firm and zeroing out stock. “I don’t think we want to do that,” he said. “I don’t think we need to do that.”
So, it’s not “nationalization” according to the Fed Chairman unless one government controls the entire 100%? How convenient.
The US will match other sovereign wealth funds dollar for dollar to acquire up to a 40% stake in Citigroup for the Feds. Call it what you will, e.g. call it “Unicornization,” but Citigroup is a private organization no more. It’s been nationalized.