Academic

Many Developments in the Crisis

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

There's lots going on, and it calls for some political speculation (not exactly an area of expertise, I confess):

• Nationalization.  The government believes in private banking, but may next take shares convertible to common stock.  And is in talks to purchase 40% of Citigroup.  Hard to know the basis of the authority for this, nationalization more generally probably comes from the TARP, but it will be exhausted soon, which means, I expect, that the Fed is going to have to get back in the business of deals.
• Ditto for AIG.  $60 billion in losses?  Incredible.  Even more so, if, as indicated, the losses are based on write-downs in the value of commercial real estate.  AIG is hardly the only finanicial institution with exposure to that.  Anyway, it's a case study of a downside of nationalization - once you own it, it is difficult to walk away.
• Allen Stanford: a bank collapse sounds like a business pages story, but darned if the Washington press isn't trying to make it political, a la Ken Lay and his donations to the Bush campaign.  We're getting the same sorts of donation stories about Stanford, and now there's this Stanford-Biden connection.  DC reporters understand and love scandals, but I'll mildly note that financial connection narratives haven't had the purchase here that they've had in the UK.  Cheney's connections to Haliburton - if you found that scandalous - might have hung around the longest, and didn't exactly lose any elections.
• The auto bailout.  It's hard to understand why Stephen Rattner was supposed to be the czar, was then replaced by a panel of notables, and now has just been tipped to lead the advice given to the panel.  I suspect that behind the labor opposition there are some management concerns too: the industry doesn't trust him.  But that doesn't explain why he managed to get a role for himself at all.
• Unless the Fed gets back in the game, the government will soon run out of money to give to all its supplicants.

Full post as published by Conglomerate on February 24, 2009 (boomark / email).