The topic of these stress tests was discussed on Bill Moyers Journal this past Friday in one of the best interviews I've seen about how to get us out of this financial abyss we're in which I posted the other day at Video Cafe but here's the video again for anyone that didn't watch it already. The transcript and links to Bill Moyers are available in that post as well.
Andrew Sullivan is a bit more confident than Johnson that the banks will be nationalized and feels that the stress tests will be used as a means to justify it to the public.
After watching the interview on Bill Moyers Journal with Simon Johnson, I hope he's right. As covered by TPM, it looks like even Lindsey Graham agrees that nationalization may be necessary.
One thing that bears noting is just what exactly Simon Johnson envisioned as to what would happen if this takes place. From the transcript of the Bill Moyers Journal interview:
Johnson: So you're looking at how the bank's balance sheets will look under stress. And then you say to them, "This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession."
And, as the president said, we may lose a decade. So we've got to be very hard headed, and all the officials forecasters are still too optimistic on that. This is the amount of capital you need. Now you have a month, or two, to raise this amount of capital privately.
And when this was done in Sweden, by the way, in the early 1990s, they did it to three big banks. One of the three was able to go to its shareholders, raise a lot more capital, and stay in business as a private bank, same shareholders. That's an option. Totally fine. However, the ones that can't raise the capital are in violation of the terms of their banking license, if you like.
We have no problem in this country shutting down small banks. In fact, the FDIC is world class at shutting down and managing the handover of deposits, for example, from small banks. They managed IndyMac, the closure of IndyMac, beautifully. People didn't lose touch with their money for even a moment. But they can't do it to big banks, because they don't have the political power. Nobody has the political will to do it.
So you need to take an FDIC-type process. You scale it up. You say, "You haven't raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone." Okay? Because the bank has failed.
This is a government-supervised bankruptcy process. It's called, in the terminology of the business, it's called an intervention. The bank is intervened. You don't go into Chapter 11 because in that's too messy. Too complicated. There's an intervention, you lose the right to operate as a bank. The FDIC takes you over. I think we agree, everyone agrees, we don't want the government to run banks in this country.
So who's speaking out against nationalization? Chuck Schumer. I know everyone's shocked, right? Another corporate Democrat taking Wall Street's money and he's against it. It seems Jane Hamsher has taken notice of the Johnson inteview on Bill Moyers and Schumer's statements on This Week as well and has more on the topic here: Who Does Chuck Schumer Represent, You or the Banks?