Catastrophe - Dick Morris [39]
And they leaked it during the same week that the administration was seeking private-sector cooperation in buying up the banks’ toxic assets.
Does President Obama truly believe he can lecture and castigate Wall Street on Mondays, Wednesdays, and Fridays and still get its cooperation on the days in between?
Doesn’t he understand that when he ignites a public furor over AIG bonuses and then incites Congress to pass a punitive tax, he sends shivers down the spines of every other successful corporate executive? Does he seriously believe that Wall Street investors won’t worry that their winnings, should they join the Treasury as partners in risky investments, would be subject to public abuse, publicity, and confiscatory taxation?
Of course he realizes that his rhetoric makes it unlikely that his program will succeed. He obviously knows the entire concept of a public-private partnership is impossible in a climate of waging class warfare, taxing the rich, and heaping contempt on anyone who makes money. The president is bright; he understands that you can’t shake hands with your right while you launch a roundhouse swing with your left.
So why does Obama persist in his aggressive rhetoric? Why does he continue to treat Wall Street as something out of Dante’s Inferno?
Because he wants the public-private partnerships to fail—and he plans to use that failure to justify his nationalization of the banks. We believe that’s his real goal.
His intent to force a nationalization of banks is obvious in the way he is regulating banks. He is adopting rules that literally force a government takeover. Here’s how it works:
OBAMA’S PLAN FOR GOVERNMENT TAKEOVER OF BANKS
Step 1 Get all banks and financial institutions to take TARP money
Step 2 Even if they want to give the money back, don’t let them.
Step 3 Because they’re getting government money, make them obey federal regulations
Step 4 Make all banks pass a “stress test,” allegedly to assure their financial solvency.
Step 5 After administering the stress test, make banks raise more capital, again, supposedly to assure solvency.
Step 6 When the banks can’t raise more capital by selling more stock, make them swap the preferred stock they gave the government in return for TARP money for common stock. This exchange lets them wipe the debt to the government off their balance sheets, but it gives the feds stock that entitles them to vote on company management (which preferred stock does not).
Step 7 Use the voting power of the common stock to dictate how to run the banks.
Step 8 Use the leverage of the banks to control the economy
PRESTO SOCIALISM!
WHAT WILL HAPPEN IF OBAMA DOES NATIONALIZE THE BANKS?
In all likelihood, the federal government would be able to clean up the bank balance sheets a lot faster than the bankers can. The federal bureaucrats aren’t wed to any of the loans; their reputation isn’t involved one way or the other. They can write off debts more ruthlessly than the bankers can and can then auction them off at bargain-basement prices to bottom-feeders willing to wait for values to improve.
As many economists have pointed out, there would be little difference between outright nationalization and the current situation.
In return for the TARP bailout, the U.S. government has acquired stock in the banks it has helped. But it has been careful to buy only “preferred” shares and warrants, not common stock. (“Preferred” means that the holder gets first crack at any dividends but doesn’t get to vote on bank management). By buying preferred shares, the government was trying to keep the banks in private hands (although Washington’s leverage doubtless entitles it to push the banks around however it likes). The feds were also trying not to dilute the holdings of the current common-stock holders, to avoid hurting the value of their shares.
Of course, then the prices of bank stocks crashed anyway. Even so, nationalizing the banks would involve wiping out their investments. These beleaguered stockholders