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Analyst: "Nationalization" of Citi and BofA Inevitable in '09

Posted Feb 18, 2009 09:43am EST by Henry Blodget in Investing, Banking
Related: ^dji, c, bac, wfc, jpm, ^gspc

In the past few months, an increasing number of economists have become convinced that the best "fix" for the banking system is a government takeover and restructuring of companies like Citigroup. And some voices in the government are finally supporting this idea.

Over the weekend, Senator Lindsey Graham said he thought "nationalization" has to be considered, because he doesn't want to throw good money after bad.

What would this mean, exactly? The government running our banks for the next decade?

No, says our guest Chris Whalen of Institutional Risk Analytics. "Nationalization" is a poor word to describe the process. "Receivership and restructuring," along the lines of what the FDIC did with WaMu, is the right way to think about it.

The biggest concern of those opposed to the RECEIVERSHIP route is that the debt markets will seize up again as debtholders realize that their capital is at risk. Chris Whalen thinks this fear is overblown.

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