Obama Must Move Swiftly On Banks

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[National Report: The Banking Crisis]

Major U.S. banks, including Citi and Bank of America, will likely be nationalized.

The government fears creating a mass panic and run by formally nationalizing the banks. But many knowledgeable economists are now saying the fear of what may or may not happen is even worse and is driving down confidence in huge increments.

President Obama was wise to let the nation know from the get go that it was not going to be a tea party.

The path to recovery will be long and bitter. There will be sacrifices and set backs along the way. The damage done by the Bush regime has yet to be fully quantified.

The Republicans were foolish to put politics ahead of responsible leadership by opposing the president’s stimulus program. The New York Times/CBS polls revealed today showing the president with a more than 60% approval rating means voters will keep close tab over Republican shenanigans and obstructionism. Americans want the President to arrest the economic slide and reverse it; they want jobs to be created and homes to be saved.

Yet, any amount of stimulus from the government will not succeed unless the banks start lending again and credit becomes available. This is an economy which is 70% based on consumer spending.

But the banks won't lend money because the CEOs fear that their institutions will collapse since the portfolios are overwhelmed by so-called bad assets. So it's best for government to step forward and take control, even if it’s for a definite time-limited period with clear benchmarks of what the government wants to achieve before inviting back private majority control.

The banks have already essentially been under government control since last October when the major banks were kept in business only through an infusion of billions of dollars from the Troubles Assets Recovery Program, the so-called Bush-Paulson stimulus.

In that instance, Citi got $20 billion; the bank later received another $25 billion for a total of $45 so far in additional to guarantees from the government.

Bank of America got $45 billion as well and JP Morgan Chase got $25 billion. The government guaranteed $108 billion in Citi's loans; so-called bad paper.

Yet, Citi is still unable to operate substantially. It is not issuing loans; meanwhile, their share price continues to collapse because investor confidence does not exist.

This is because no one knows how "stressed" banks such as Citi really are. How bad are the bad --so called "toxic"-- assets of such as Citi's and Bank of America's?

Very bad. The evidence came when the Tim Giethner, the Treasury Secretary proposed a plan whereby government would team up with the private sector to buy up banks' toxic assets in order to move them towards normal operations with new capital. What happened? Investors fled Wall Street and the Dow dipped sharply.

The private sector has no confidence in the banks' assets and do not want to risk their own money in a bail out. This is ironic, at a time when hypocritical Republican lawmakers are still complaining about "too much government spending." What planet do they live on? Who else will spend to save the banks then when investors are hiding their money in gold and under mattresses?

That's why the government may as well officially nationalize the banks.

There is a concern about the "psychological" aspect. After all, this is supposed to be the world's premier capitalist economy. Well the country cannot afford to withhold necessary remedies just to appease psychological fantasies.

Things will get worse before they improve. Better to swallow the bitter medicine now so the healing can start rather than dragging out the ailment.

The President has to act swiftly on the banks; if they are to get tens of billions of dollars more than the government should be in total control of the banks and have current and new officers report to the Treasury Secretary.

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