Take My Bank...Please

There has been much discussion over the past few days about the possibility that the U.S. government will attempt to nationalize (i.e. take over) troubled banking giants, such as Citigroup and Bank of America. The possibility of a nationalization has resulted in a significant decline in the price of these banks' shares, as such a move would presumably result in the banks' common shareholders being wiped out. Shareholders and free market proponents alike have raised their voices in shrill protest against the idea.

As for me, despite my belief in the free market and my natural abhorrence of anything that even smells of regulation, I actually think that we should nationalize some of these banks.

Think of it this way. Why should the taxpayers - that's you and I - pour billions of dollars into these institutions, which would otherwise fail (at least that's what they're telling us), and not even end up owning the entities?

Instead, we're handing out billions of dollars to these banks, leaving management and the shareholder base intact, and we don't even have a majority ownership interest.

How does that make any sense?

Bear in mind that these institutions are essentially insolvent. I understand that the government feels that it would be catastrophic to have these institutions go bankrupt, but we should at least deal with them as though they are actually in bankruptcy. Specifically, the shareholder base should be wiped out, and the entity that is providing future funding (in this case, the government) ends up as the owner. Why is the current shareholder base being treated any differently from the way we treat shareholders of any insolvent company?

There remains, of course, the cultural aspect of nationalization. More so than in any other developed nation, the United States has clung to the mantra of private ownership of financial and industrial companies. In other countries, Great Britain for example, where major companies were not too long ago owned either in part or entirely by the government, nationalization of the banks doesn't carry the same negative association. Here in the U.S., our long history of private institutional ownership - a good thing in "normal" times - might be serving as an impediment to doing the right thing in the current crisis.

However, a nationalization need not be permanent. I believe that the government should privatize the banks that appear set to fail, and manage them until they are ready to be sold back to the public.

However, for its part, the government doesn't appear to be in favor of nationalization. Federal Reserve Chairman Ben Bernanke stated that while he expects that the government will own increasingly larger stakes in troubled banks like Citigroup, he's against the idea of an outright nationalization, which would be, in his words "disruptive to the markets."

Disruptive to the markets?!

Hey Dr. Bernanke, I hate to break it to you, but I think that we've already experienced just a wee bit of a market disruption. What exactly is going to happen if the government seizes these banks, wiping out the shareholders in the process? Are people going to be even more reluctant to own stock? Is that even possible at this point?

Another myth that people toss around is that nationalizing some banks - thereby allowing for real control over executive compensation - will drive all of the talented managers away, leaving a huge talent vacuum.

(I'll pause now to let our readers L their respective A's O, in texting parlance).

As a special service to our readers, I'll let you in on a little secret:

Any idiot can run a bank.

(I was going to say "even a monkey could run a bank," but I was afraid that I'd be branded a racist for saying so, even if my comment wasn't accompanied by a cartoon. Perhaps such a comment would've outraged the Reverend Al Sharpton to the point where he'd go on a hunger strike until this blog was shut down. Considering that several economists have estimated that a prolonged hunger strike by the Reverend Al would single-handedly shave about half a point off of the United States' GDP, this is a risk that we just couldn't take in the current recessionary period).

As yet another added service to our readers (is this the greatest blog, or what?), I will now present "MBB's Quick N' Easy Guide to Running a Bank," featuring a simple, step-by-step set of instructions.

(1) Obtain a phone book from a town with a demographic makeup that is at least 80% white.
(2) Record the 20 most popular surnames.
(3) Put 10 of those names in one column (Column A), and 10 in another column (Column B)
(4) Pick a name from Column A. This will be your first name.
(5) Pick a name from Column B. This will be your last name.
(6) For some added "garnish," add a random middle initial, and a numbered suffix, such as III or IV.
(7) Raise capital by taking deposits from customers and paying them a certain rate of interest.
(8) Take the capital you've raised and lend it to other customers at a rate that is somewhat higher than the rate referred to in #7 above.
(9) To reduce the risk of excessive write-offs due to bad loans, perform some perfunctory eligibility screening. For example, in order to get a loan, the applicant must be able to tell you how many dimes are in a dollar. That should do the trick.
(10) Play golf.
(11) Drink scotch.

Now, I know what you're thinking. How will I manage to run a bank under an assumed name? What about the state bank regulators and the SEC? Well, let me assure you, Mr. Williamson P. Coopersmith, III, there's nothing to fear. Here's what you do when the regulators come to your office.

(1) In order to break the ice, talk about your golf game. Complain about how you've been slicing your tee shots lately.
(2) Show the regulator a picture of his backside.
(3) Show the regulator a picture of a hole in the ground.
(4) Take the pictures back, mix them up, show them to him again, and ask him to tell you which one is which.
(5) He will promptly leave your office, after offering a polite goodbye. Within three business days, you will receive a letter from the state banking regulatory authority, stating that they've received your information request, and that they will need approximately six months to "formulate a proper, written response to your inquiry." This will give you time to plot your next move. I'd recommend choosing yet another name.

Considering this, I don't see a terrible downside to temporarily nationalizing these troubled banks. If the taxpayers are going to keep them afloat, we should also have executive power.

It's something I never thought I'd ever say, but I never thought our banking system would get into its current predicament, either.

It's time to nationalize the banks.