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Are banks becoming government utilities like water, electricity or the Post Office?

On Sept 19th, I posted “Paulson, Bernanke Push New Proposal to Cleanse Balance Sheets | huh!!” reflecting my disbelief that buying bad loans from banks was “tantamount to nationalisation of Banks”. My disbelief has gone into hyperdrive, as we now see many of the large world economies actively or hinting actual equity stakes in banks.

Yes the situation in the markets are bad, and yes investors have seen their portfolios drop. While an unprecedented drop, its not the first time. Then there is the issue of liquidity amongst banks, and between banks and the central banks’. Surely this should be controllable? Banks’ and central banks’ have always had a somewhat ‘rich uncle’ – ‘rash nephew’ relationship, and the uncle always wins.

Banks’ are like gigantic sponges when it comes to cash and liquidity. If we go down the route laid out by Brown in the UK it will have some short term benefit but it will have long term repercussions that we cannot imagine. if you are not sure what I mean, imagine getting your mortgage at the Post Office!

Related links:

Paulson’s Bank Recapitalization Plan

Iceland nationalises its biggest bank and suspended trade on its stock exchange

The US Federal Reserve, meanwhile, agreed to provide insurance giant American International Group with a $37.8bn loan on top of the $85bn loan given to the troubled firm last month.

My take on the TARP “Emergency Economic Stabilization Act of 2008, and the word that is missing” – the word was actually capital, but I did not expect the governments’ to provide it!

UPDATE – the mainstream news is catching up:

U.S. Treasury May Buy Stakes in Banks Within Weeks | Bloomberg

Treasury may capitalize banks by end of October: source | Reuters

Paulson Says Treasury May Own Banks | Default News

U.S. Treasury Considers Buying Stakes in Banks | Wall St Journal

4 thoughts on “Are banks becoming government utilities like water, electricity or the Post Office?”

  1. What, I don’t even get a hat tip? 🙂

    Interesting to note that, according to the Economist, John McCain’s economic advisor doesn’t like the inclusion of the capital injection in TARP, but Barack Obama’s advisor does. Both stopped short of actually saying they favour capital injection as the approach to take though.

  2. Hi BankWatch,

    I tried contacting you a while ago but never received a response, can you please email me so we can discuss my proposal?

    Thanks

  3. UK retail banks used to be dull, boring, slow-moving, maddening, bureaucratic and good for little more than paying in your salary to pay bills and getting a mortgage if you could easily afford one. But safe.

    From a consumer standpoint, nothing has really changed apart from the advertising, while successively brighter and greedier management teams became attracted by the honeytrap of actively trading in the wholesale markets. Abbey got slaughtered there some time back, and now it’s the others’ turn.

    Time for the whizz kids to move out of retail banks into hedge funds where they belong, and for retail banks to become completely transparent about what they’re doing with people’s every day money.

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