Government Moving to Socialize Banks Now

The U. S. Federal government is now in it's final efforts to nationalize up to ten of the nation's largest banks, including Citigroup and Bank of America. This comes as a result of unprecedented “regulatory oversight” of the bank results arising from the Obama Administration’s highly theoretical stress testing.

This theoretical stress testing involved no testing at all, but in fact is a “what if” scenario applied against a heretofore unrecognized equity ratio never before used to take over an ongoing financial institution.

The stress test scenario is as follows: if the bank ceased operations today, what would the shareholders have left in a company if the company were liquidated. The new Federal standard for what the Feds are terming “tangible common equity” is a value of 4% of the institution’s assets, and such assets are arbitrarily assigned a lower value associated with the Fed’s expectation of risk of the asset.

Without saying so, the Feds want to take ownership interests in the banks by saying the preferred shares issued by the banks to the government as a result of TARP funds are held as liabilities, which weigh down the value of a bank’s assets. If the bank would merely convert these preferred shares into voting common shares, it will convert the TARP loans from a debt liability into shareholder equity, raising the asset value of the bank on the books, but not actually improving the bank’s operating position by even $1, since no actual new money is flowing into the bank either via loan or investment.

It is said that certain of the 20-odd banks suffering this unprecedented Federal scrutiny will not be permitted to increase the value of their assets in the normal ways, such as selling shares to private investors or issuing bonds or other debentures, but MUST convert the government preferred shares into common stock.

The Federal government, over this weekend, during the slow news cycle, is trying to socialize these banks by negotiation with weak willed bank officers. These idiots are finding out what happens to the unwary that lie down in the bed of vipers that is the Federal government.

The socialization of the capitalist system is well underway. The government is using as an excuse a what if, worse case scenario that is purely theoretical -- it is not responding to an actual bank failure.

Let’s see if the American public has been zombiefied enough to take it.