Without Clarity, We're Stuck in a Down Spiral
Posted at 9:26 a.m., Feb. 25, 2009

Are the banks already "nationalized?" My friend David Reilly over at Bloomberg penned a piece this morning saying it's already happened.

But then the obvious response is, if we are nationalized, then why is there still independence? Why is Vikram Pandit able to say he wants to keep Banamex (which he should), and why is Wells Fargo ( WFC) able to pay that huge dividend, a totally inconsistent payout that Peter Eavis highlights today in an excellent piece about capital ratios and how Wells' is inferior to JPMorgan's ( JPM) yet only JPM cut the dividend.

And why are the same boards of directors and officers that ran Citigroup ( C) and run Bank of America ( BAC), the two acknowledged problem kids (at least acknowledged by the banks), still there if we are nationalized?

Which brings us to the semantics of the situation. Reilly points out we have nationalization of the system but no seizures. That's an oddity given that Sheila Bair -- my guest today on CNBC, on a show that runs tonight at 10 -- was actually nationalizing banks, in the "seizure" sense of the word a few months ago to prevent runs on the banks. In retrospect, did we need to do that? Did we need to truly nationalize, and how (speaking of inconsistencies) could we not seize BankAtlantic ( BBX), Corus ( CORS) or Bank United ( BKUNA) and yet seize WaMu and Wachovia? How did those banks not get seized and WM and WB did?

Oh, and while we are at it, why did the government seize the deposit institution that was Lehman -- it had billions in deposits -- and not seize AIG ( AIG), which had no deposits and was totally rogue?

All of these must be on the agenda. Someone has to clarify what the heck happened. Someone has to explain whether the principal method of bank funding -- preferreds -- gets wiped out, because if you wipe out preferreds, you are seizing and "nationalizing" in the old sense of the word is here.

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