What The President Can't Do?

By Big Tent Democrat, Section Obama Administration
Posted on Tue Aug 23, 2011 at 03:59:33 PM EST
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Matt Yglesias writes:

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

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What The President Can't Do? | 31 comments (31 topical)

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It's very clear ... (5.00 / 1) (#1)
by Robot Porter on Tue Aug 23, 2011 at 04:07:55 PM EST

what this administration cares about.

Hint: It ain't us.

Enough with bailing out the banks. (5.00 / 1) (#2)
by caseyOR on Tue Aug 23, 2011 at 04:11:55 PM EST

Let the FDIC seize BofA, fire the executives, break up the company, and disperse whatever assets there are.

Then, DOJ needs to open a criminal investigation, including Ken Lewis' tenure. Oh, and clawing back bonuses, etc, awarded since, oh say, 2007, must be done.

Of course, this won't happen with Geithner around, and maybe not even if he was gone. That doesn't mean it isn't the right thing to do.

Yes-why are we even talking about anything else? (none / 0) (#3)
by ruffian on Tue Aug 23, 2011 at 04:18:10 PM EST

I thought the whole point of the Dodd-Frank law was to prevent 'too big to fail' and ensure an orderly shutdown.

The whole thing just reeks.


sadly, no (none / 0) (#5)
by The Addams Family on Tue Aug 23, 2011 at 04:22:01 PM EST

: As if Geithner has taken Frank-Dodd seriously :) (none / 0) (#9)
by Militarytracy on Tue Aug 23, 2011 at 04:49:35 PM EST

Blodget's idea of letting a stock price determine (5.00 / 3) (#24)
by steviez314 on Wed Aug 24, 2011 at 09:19:31 AM EST

policy might be the stupidest thing I've ever heard of.

Maybe we should have had a policy of setting a secret price for dot com stocks--if they went over it, we should have arrested the stock analyst.

: Defintiely hare brained (none / 0) (#26)
by Big Tent Democrat on Wed Aug 24, 2011 at 11:12:50 AM EST

And if J P Morgan (none / 0) (#4)
by Ga6thDem on Tue Aug 23, 2011 at 04:20:56 PM EST

takes over BoA do they then have to deal with the lawsuits that are on going? This sounds like it might be a sweet deal for J P Morgan on the surface with Geither possibly brokering it.

I am trying to keep up with what's going on with BoA because I have my mortgage with them (i did not pick them) but the info out there is so confusing that I'm just kind of lost.

What happens to the mortgages if the FDIC does take over?

: You still pay (none / 0) (#17)
by bocajeff on Tue Aug 23, 2011 at 10:25:31 PM EST

the mortgage will be taken over by another entity and you will pay that entity.

Not sure if Dodd-Frank fixed this (none / 0) (#6)
by seabe on Tue Aug 23, 2011 at 04:42:59 PM EST

But these were the problems back then:

Oh My God, Nationalization Is NOT Possible

That is just wrong (none / 0) (#10)
by Big Tent Democrat on Tue Aug 23, 2011 at 05:06:20 PM EST

The title or the substance (none / 0) (#11)
by seabe on Tue Aug 23, 2011 at 05:12:53 PM EST

: The substance (5.00 / 1) (#12)
by Big Tent Democrat on Tue Aug 23, 2011 at 05:14:14 PM EST

They make it sound as if a company with overseas operations has never gone bankrupt. It is just dumb imo.
Financial companies like that have done so.

: Lehman Brothers was International (none / 0) (#15)
by Militarytracy on Tue Aug 23, 2011 at 05:21:34 PM EST

Because I fail to see how the susbtance (none / 0) (#13)
by seabe on Tue Aug 23, 2011 at 05:14:33 PM EST

is incorrect. Ryan Avent has made the same arguments when Hoenig tried to find a way around these legal issues.


: Avent's criticism here (none / 0) (#14)
by seabe on Tue Aug 23, 2011 at 05:17:44 PM EST

http://www.ryanavent.com/blog/?p=2005

Goldman Sachs honcho (none / 0) (#7)
by kmblue on Tue Aug 23, 2011 at 04:43:29 PM EST

hired a lawyer yesterday, and their stock fell.
The Masters of the Universe are resting easy anyway, knowing O will be re-elected.
Geither stinks.

What is what we are pretty (none / 0) (#8)
by Militarytracy on Tue Aug 23, 2011 at 04:47:58 PM EST

sure is Geithner's deal going to do to the attitudes of the still broke, still housing anxiety ridden, still unemployed America? Does Obama care about that? Aren't all of those people, thrown out into the streets dodging the slings and arrows of outrageous fortune, already so pi$$ed at him they can barely see straight?

The FDIC can do its thing that we all empower it to do. If they don't then isn't the Frank Dodd legislation mostly a joke then, not just half of an undone joke?

If the FDIC does move in though what will have to be unwound on that second set of books? Having that happen will probably unleash another banking crisis because unwinding Bank of America's crap will unwind some of everybody else's crap. The banks should have been taken over in the beginning of all this, creative bookkeeping is THE LAST THING anybody should have done to deal with reality.

Yes, he can (none / 0) (#16)
by koshembos on Tue Aug 23, 2011 at 06:07:53 PM EST

Geithner, i.e. Obama, can nationalize the bank without calling it that. Yglesias, as many similar bloggers, comments on legality without really knowing what is legal. One way, as said above, is FDIC that has taken over 64 banks this year. Number 65 is fine.

Will never happen unless Ms FDIC does it herself.

Go lady!

: Sheila Bair (none / 0) (#21)
by BDB on Wed Aug 24, 2011 at 06:10:03 AM EST

retired from the FDiC earlier this year (and pretty much flamed everyone in the Administration, especially Geithner, on the way out for coddling banks at the expense of good policy).

Wondering if those (none / 0) (#18)
by oculus on Wed Aug 24, 2011 at 03:19:48 AM EST

who fund Matthew Yglesias's blogging (am assuming he is well-compensated, as opposed to a blogger w/a day job hoping for a buyout of his or her blog) realize his credibility, at least on the issue of government (state and federal) statutory discretion to appoint a receiver to run a bank in place of the bank's elected board of directors?

Print reporters make glaring erros, often followed by "corrections" in the paper on a subsequent day. If these reporters just make stuff up they lose their jobs.

Where is the accountability re "A rank" blogger?

Yglesias (none / 0) (#19)
by AngryBlackGuy on Wed Aug 24, 2011 at 05:01:50 AM EST

Remains one of the most respected bloggers in america.

Let's not let our personal views cause us to lose sight of reality.

The reality is that (5.00 / 4) (#22)
by Anne on Wed Aug 24, 2011 at 07:17:28 AM EST

Matt Yglesias has gone from being a respectable blogger to being an apologist for all things Obama.

Oh, he has his moments, when it seems his eyes might actually be open, but those pass quickly, and he goes right back to taking whichever stance he needs to in order to shore up Obama's political fortunes. I think you might have some personal familiarity with that particular approach.

I understand where you're coming from, though; if I needed his kind of "analysis" to maintain my state of denial, I'm sure I could, and would, respect him, too.


: Silly Rabbit (5.00 / 2) (#23)
by smott on Wed Aug 24, 2011 at 08:50:38 AM EST

Apologist for Obama = Respected Blogger.
See Klein, Drum, Booman et al....

Um ok? (5.00 / 1) (#27)
by Big Tent Democrat on Wed Aug 24, 2011 at 11:13:29 AM EST

What that has to do with my post is not apparent to me.


What a ridiculous comment (4.80 / 5) (#20)
by shoephone on Wed Aug 24, 2011 at 06:07:41 AM EST

from start to finish.


Back-at-cha! (none / 0) (#25)
by nycstray on Wed Aug 24, 2011 at 09:58:20 AM EST

Well, he's slightly more sane than you. (none / 0) (#31)
by observed on Wed Aug 24, 2011 at 06:45:33 PM EST

yeah, (none / 0) (#28)
by cpinva on Wed Aug 24, 2011 at 03:55:53 PM EST

henry blodget, a guy i wouldn't trust to guard my trash, much less anything of actual value.

there may have been a time when mr. yglsias was thoughtful blogger, with an occassional insite worth considering. mabye. in the time i've become aware of him (granted, that's been only in the past couple of years), i've been less than whelmed.

if this is what passes for insightful commentary on his part, he'd do well to retire and go do something constructive, like dig ditches for replacement water main pipes. as it is, he's just continuing to trash whatever reputation he used to have.

kind of sad actually.

ok, when the heck are you guys going to get (none / 0) (#29)
by cpinva on Wed Aug 24, 2011 at 03:57:35 PM EST

an "edit" function here? geez, i am nearly embarrassed by my typos on that last post. nearly.

: Use (none / 0) (#30)
by Ga6thDem on Wed Aug 24, 2011 at 04:36:50 PM EST

Google Chrome. It has spell check in it.