Remember the drama of last summer?
- The “irresponsible” suggestions that Fannie Mae and Freddie Mac were insolvent,
- the vehement denials,
- the regulator-approved capital ratios,
- the inconceivable theory that the two companies would eventually be, horrors, nationalized
- the plummeting stock prices,
- the additional denials,
- the gradual realisation on the part of everyone except management that the two giants were dead men walking
- the $200 billion government bailout
And, now, four months later, we get news that $200 billion probably won’t even begin to cover it, that Fannie and Freddie were so colossally insolvent that management’s denials of last summer were nothing short of absurd.
Welcome to the future of Citigroup. And Bank of America. And a half-dozen other huge insolvent banks that seem so central to our national psyche and economy that even the forthright Obama administration still can’t even bring itself to utter the word “nationalize” (even though it’s hard to find any smart economist anywhere who doesn’t think this is 1) inevitable, and 2) the best plan for the country).
Citigroup and Bank of America are where Fannie and Freddie were last summer, except that they’ve already sucked down (and partly paid themselves) about $100 billion in bailouts. And Citi and BOFA’s boards and management are where their Fannie and Freddie counterparts were last summer: In denial.
Once we finally nationalize Citigroup and Bank of America, doing so won’t seem like a big deal: It will seem like the obvious, inevitable, and fair solution to their own dumb-arse gambling bets, the ones that made them so rich and beloved on the way up. Hopefully, the Obama administration will have the courage to do this the way it should be done: by converting debt to equity, but that remains to be seen. In any event, it won’t wreck the country or rock the foundations of capitalism. On the contrary, it will be mostly forgotten in a week. (Most people actually have bigger things to worry about.)
So let’s stop tiptoeing around and just get it over with.