YOU SAY NATIONALIZATION, I SAY BANKRUPTCIZATION, AS LONG AS WE CALL THE GEITHNER "PLAN" OFF

An excellent post by Barry Ritholz on the "nationalization" issue. As someone said to me, this piece reads like a primer on the topic. But it's a very short, extremely readable primer, so there's no reason not to check it out. A highlight or two:

As Bloomberg’s David Reilly writes, “The nationalization debate is a smoke screen. We’ve already nationalized the big banks. Let’s just accept it and move on” — and I could not agree more.

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why don’t we call it by a more accurate, precise, and less scary name: FDIC mandated, pre-packaged Chapter 11, government funded reorganization.

That is an accurate description of what occurred with Washington Mutual (WAMU) now part of JPM Chase, and Wachovia, now part of Wells Fargo. The Feds step in, seamlessly transfer control of the assets to a new owner, while simultaneously wiping out the debt, the shareholders, and giving a huge haircut to the bondholders.

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What emerges is a clean bank, no debt, well capitalized, and free of deadly toxic assets.

If we do this correctly, we accomplish two or three things at once: re-capitalize the banks . . . but eliminate the moral hazard of bailing-out the banks' current management and shareholders and the moral unpalatability of throwing our money down the drain as we twittle our thumbs and await the inevitable.

Of course, the longer we wait to do this, the less we end up accomplishing, both in terms of positive outcomes and avoidance of the negative. And, most importantly, we need vigilence and oversight all the way to the end, which is something I really worry about. In other words, if we go to the goal line and then sell the re-capitalized banks right back to the same fucking shysters that drove us into the ditch in the first place -- and sell at a grossly discounted rate -- we will have completely rewarded the wrong people. At our own expense.