The following post appeared earlier Tuesday on RealMoney . Sign up for a free trial of RealMoney, and enjoy incisive commentary all day, every day.
What's at stake with nationalization? Why do I oppose it so much? Why do I feel that its proponents are glib and over their heads and have done no homework and do not have a stitch of rigor? Maybe because I think that nothing is impossible for those who don't have to do it themselves. I have said again and again that as much as you may hate the bankers who got us here, it is well beyond the ken of this government to fix it. I have said that the analogies to the Swedish "success" of nationalization are chimerical, because the Swedish banking issues were small and manageable. I have said that you simply can't compare the two.
Nobody's listening, They are listening to academics who have never traded a stock, a currency, a future or a complex derivative. They are listening to people who could never manage a profit and loss statement. Never . They will sink us to the Stone Age if given the chance. But maybe that's not even getting through to people.
So how about this? How about considering what the government will have to do to unwind a large bank that has problems, like Bank of America (BAC - Get Report). Take a look at the real BofA based on December consolidated financial statements. Ask yourself, can the team run by Tim Geithner, a team that can't even staff itself, be able to run this bank with these stats? This is what you would have to run if you owned BofA based just on the off-balance-sheet items from bank at the end of the year. That's right, forget about all of the bad loans, both residential and commercial, forget about all of the difficult servicer issues involving Countrywide and just consider this horror show: :
- 1.3 trillion in binding unfunded loan commitments.
- $80 billion in letters of credit.
- $1 trillion "matched" book of credit default swaps.
- $1.4 trillion notional swap book.
- $60 billion in liquidity commitments to conduits.
- $26 billion in residential loan guarantees related to loans sold but still serviced.
- I don't have the numbers handy on variable interest SPVs but they're not insignificant.