I had a fascinating talk with a government official who will, sadly, have to go unnamed and undescribed.
I wanted to know if the rumors are true and many in government see nationalization of the banks as an inevitability; that several large banks are, basically, insolvent. If the government shuts them down, there is no other bank big enough to buy them all. So, the government has no choice but to own them.
This is, of course, a huge topic in the news. It's a massive transformation of the U.S. government's role in private markets. In short, it's the kind of thing that someone like me—a business reporter—would like to hear a loud, healthy debate about.
Not gonna happen.
The government official told me that if word leaked out in any way that the government was even considering nationalization, it could spook the stock markets so badly that all those troubled banks would, instantly, become dead banks.
Citi, Bank of America and other big banks, have shockingly low stock prices. But some people think that they are still overpriced—that those banks are insolvent and the only reason their stock has any value is because many investors believe the government will bail them out.
Nationalization would, in most scenarios, mean the stock would lose all of its value instantly.
So, rumors of nationalization will encourage people who own bank stocks to sell in a wild rush. Even though those banks stock prices are low, they're not zero. Not yet.
Even worse, any bank needs to borrow money constantly in order to survive. That's their business model: they borrow money and then lend the money out. If they can't borrow money, they are out of business. Would you lend money to a bank that you heard might be taken over by the government? Probably not.
So, if I can report on NPR that someone told me the government is considering nationalization (I'm not, by the way. Nobody has told me that), then those banks might collapse immediately and the government would have no choice. They'd have to nationalize.
This government official is the kind of person who normally, well, leaks; tells reporters interesting things off the record. This person wouldn't budge. Not an inch. I asked: so, if you were just in a meeting where you decided nationalization is, clearly, the best option, you'd tell me you had never discussed it, right? This person said: yup.
This is why so much of the big government moves happen on a Sunday afternoon. They wait until the markets in NY close on Friday, then they pounce. They spend a sleepless weekend—when global markets are closed—putting everything together and then announce it on Sunday afternoon, NY time, before Tokyo's stock market opens.
If the economists who tell us that nationalization is inevitable are right, then we'll probably see things happen just like that. We'll get breathless, hurried rumors on a Friday evening followed by a Saturday of confusing, contradictory leaks and a Sunday news conference announcing that the U.S. government now owns and operates several of the world's largest banks.
I think we all wish this crucial moment could be discussed and debated in public for as long as is needed. However annoying partisan politics can be, it does bring most of the issues out front and we get to see who stands
I don't know what the government could do. There's got to be some way of discussing this without sending the markets into chaos.
But, for now, we can know for sure that many of the most important decisions in U.S. financial history are happening right now, in secret.