While the Federal Reserve says most US banks are well capitalized and will be okay in these stress tests, chances are the public and investors will still have to confront the n-word. Nationalization is on its way.

Read carefully between the lines of this otherwise bland New York Time piece. As per that piece, experts assess that US banks might still need $1 trillion in capital. "As the dust settles from the shakeout on Wall Street, the 19 banks subject to stress tests are starting to divide into three groups: the strong that can weather the storm; the weak that will need new, perhaps significant, support; and the ones on the verge, whose fate will be decided by regulators."

The question is where those banks "on the verge" are going to get that money. Surely not private investors.

Earlier this week, I did a blog entry suggesting the US government was moving in the direction of nationalizing the banks via the back door. This is unfortunate. From one perspective, governments don't know how to run banks. From another, nationalization might well be the only way to fix the toxic assets. What's needed is a full and open debate, possibly even Congressional approval. Doing it by the back door to avoid that debate is wrong.

Posted by: leon    Source

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