Nationalization:

Process by which the national government takes control of private companies.   See book "Commanding Heights"

opposite of: 

Table of Contents:

Bank nationalizations 09?

"The fact that the Treasury has not sought voting rights or outright control over day-to-day operations doesn't mean the banks are still "private." Nor does it mean that much remains of the former "system" to be preserved. The Treasury now owns preferred shares and warrants of many of the banks that have received bailout money. These can be converted into common stock and cashed out whenever the government wants. Technically, the Treasury has a controlling interest in many of these banks if it wanted to exercise that interest. As to many other banks, the Treasury could easily gain a controlling interest; their remaining common shares are worth so little now that Treasury could buy just buy them up. "  Robert Reich | Jan 29, 2009 link

"Put simply, the big banks are going under. No one wants to say this out loud for fear of causing even more panic, but the fact is that many of these banks are insolvent. Their assets are worth far less than their face value because so many borrowers can't -- or won't be able to -- repay the loans.

Six months ago it may have made sense for the government to buy up so-called "toxic assets," based on home mortgages that should never have been issued. Three months ago it may have made sense to establish a "bad bank" to store them in, until they could be resold.

But as the Mini Depression worsens, "toxic assets" are no longer all that distinct from a vast and growing sea of non-performing or endangered loans on the banks' balance sheets. Toxicity has spread to loans made to people and companies that were good credit risks as recently as early last year but are now bad risks. You don't have to be an honest financier (no oxymoron intended) to figure this out: Ten percent of Americans are behind on paying their mortgages. Millions more are behind on paying their credit-card bills. Hundreds of thousands of small businesses are behind on paying their own bills. Auto suppliers are can't pay their bills. And so it goes.

A "bad bank" collecting all these non-performing or in-danger-of-becoming non performing loans might well become larger than the rest of the banking system -- nationalization through the back door of lemon socialism, where the government (and taxpayers) own and control this vast sea of junky loans.

Other options (to solve the Credit Crisis)

see our discussion on credit crisis & solutions

CitiBank Feb 2009:

Treasury will convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors, such as sovereign wealth funds.    It will virtually force those other preferred share investors to convert to common shares by eliminating most preferred dividends as well, although the government will continue to get an 8% dividend on the $20 billion in preferred shares it is not converting….Friday's move could very well be the first of similar actions taken by the federal government going forward. The Treasury Department said in its rescue plan, unveiled this week, that any major bank that comes up short in the so-called "stress tests" now being conducted will be required to raise more capital, and that may be accomplished by converting the preferred shares that Treasury now holds in each of the institutions. Source: CNN

As the Economist said back in January:

Preferred stock …is not a substitute for common equity. It makes shareholders more geared, raising share-price volatility. And it does not boost the long-term capacity of a bank to absorb losses without defaulting. As a result it does not increase such banks’ appetite to lend.

Continued:

Under the original 1988 Basel 1 rules governing bank capital, the bulk of banks’ tier-one capital had to be common equity. This can suffer losses without defaulting, need not receive a dividend and does not have to be repaid. But banks were also allowed to include some preferred stock, which sits somewhere between debt and equity. Such hybrid capital suffers losses only once the common equity has been wiped out and typically offers more secure dividends.

Some nationalization links

• Buiter — Time to take the banks into full public ownership
• Clusterstock — More Cries For "The Swedish Model" To Fix Banks, Why Are We So Afraid To Fix Banks The Right Way?
• Cowen — Why bank nationalization is a last resort, Is the Sweden plan so much better?
• Dillow — Arguing about bank nationalization
• Drum — Kevin Drum Smackdown Watch, Nationalization Revisited, Nationalization
• Fama — Government Equity Capital for Financial Firms
• Fox — Why hasn't the government nationalized Citigroup? Hank Paulson's sort of answer, The case for nationalizing Citigroup and Bank of America, and getting Robert Reich a fact checker
• Free Exchange — Why not nationalise?
• Hempton — Nationalisation after due process
• Jones — Nationalisation linkfest
• Kedrosky — Bank nationalization: Why Are We Pretending?
• Krugman — Wall Street Voodoo
• Gaius Marius — nationalization now!
• McArdle — Why not nationalize, like Sweden?
• Quiggin — What to do with nationalised banks?
• Salmon — The Urgent Financial Crisis Facing Obama, Insolvent Banks: Why a Debt-for-Equity Swap Won't Work, Felix Salmon Smackdown Watch, More on Bank Nationalization, Why Nationalization is the Best Alternative, Why We Should Nationalize Now, Nationalize Citigroup and Bank of America
• Surowiecki — Nationalization will not be easy, Where would bank nationalization stop?
• Yglesias — The grain

blog: http://interfluidity.powerblogs.com/posts/1232437478.shtml

Other nationalizations (non banking)

USA

taxpayers -- will own much of the housing, auto, and financial sectors of the economy, those sectors that are failing fastest.

Consider too that the government already finances much of the aerospace industry, which is still doing reasonably well but depends on a foreign policy that itself has been a dismal failure. And a large portion of the pharmaceutical industry and health care sector (through the Medicare and Medicaid, the Medicare drug benefit, and support of basic research). These are in bad shape as well, and it seems likely the Obama administration will try to reorganize much of them.

What's left? Most of high-tech, entertainment, hospitality, retail, and commodities. So far, at least, we taxpayers are not propping them up. And when the economy turns up -- perhaps as soon as next year, most likely later -- these sectors have a good chance of rebounding.

But the others -- the ones the government is coming to own or manage -- are less likely to rebound as quickly, if ever. If anyone has a good argument for why the shareholders of these losers should not be cleaned out first, and their creditors and executives and directors second -- before taxpayers get stuck with the astonishingly-large bill -- I would like to hear it.

source:  Robert Reich | Jan 25, 2009 http://www.rgemonitor.com/financemarkets-monitor/255285/how_america_embraced_lemon_socialism

Venezuelan Nationalizations:

see also our article on Venezuela

The government of Hugo Chavez is not exactly (foreign) business friendly.  We all know that, but beaware of the danger that Chavez may decide that your industry is "strategic", and that he will nationalize the business (opposite of privatization), essentially taking control of the business (stealing it from private investors).  see articles articles - Chavez nationalizes industries 

The nationalisations have been seen as an attempt by Mr Chávez to boost sagging popularity ahead of regional elections in November by tackling housing shortages and speeding up infrastructure projects.   Indeed, Mr Chávez’s initial justification for nationalizing the sector was that foreign cement companies were exporting too much of their produce, while Venezuela suffers an acute housing shortage, with official figures showing a deficit of 2.7m homes.  But, according to local daily El Nacional, there were no cement exports in March, and in the first quarter of 2008 exports represented less than 2 per cent of local production.  “It is clear that the problem in the housing sector is nothing to do with cement, and less so cement exports. Having the sector under state control will certainly do nothing to help, it was working just fine already,” said José Grasso Vecchio, a Caracas-based analyst. “The housing deficit is so large that no government can fix such a problem by itself, no matter how much money it has,” he said, adding that the government has made no serious study of the housing sector’s problems.

Even though Mr Chávez assures that the companies will be compensated “to the last cent”, the move sends out a negative signal to investors.

Brazil: Petrobras

an economist argues that Petrobras should be Nationalized....see article:  http://www.rgemonitor.com/latam-monitor/252960/why_brazilians_should_demand_the_renationalization_of_petrobras#readcomments