Nationalizing Financial Institutions

Disclosure: I have been a financial institution regulator since the 70's

All the bluster, outrage and discussion about nationalizing financial institutions reminds me of that great line in Casablanca:

Captain Renault: I'm shocked, shocked to find that gambling is going on in here!

We do it all the time. We nationalize financial institutions frequently -- in recent months it's done weekly. We just call it "conservatorship".

When an insured financial institution is found unsafe and unsound, the regulator has many powers, one of which is conservatorship. This power is used frequently primarily because once a financial institution is under conservatorship: the Agency can repudiate contracts, leases, commitments, or any other threats to the assets of the financial institution. This often makes it the preferred method of handling an unsafe and unsound situation. They can replace management or direct them. They can close offices or open new ones. The stock holders are paid nothing and go away and the Agency becomes the governing body. We can operate it, liquidate it, split it into "good" and "bad" banks, sell off assets, "sell" deposits, merge it, convert it -- do whatever is in the best interest of the deposit insurance fund and therefore the Nation.

It is nationalization and it has been working fine since the 30's and we didn't all become Communists or close down capitalism because of it.

It is a boogeyman argument and I'm tired of it.

Here's a press release announcing a conservatorship last year. See if you can tell the difference between conservatorship and nationalize:

Valley Credit Union Placed In Conservatorship
Valley Credit Union is Open and Operating, Member Accounts are Safe and Federally Insured

September 3, 2008, Alexandria, Va. -- The National Credit Union Administration (NCUA) yesterday assumed control of the operations of Valley Credit Union, a state-chartered, federally insured credit union headquartered in San Jose, California.

The California Division of Financial Institutions appointed NCUA as conservator after placing Valley Credit Union into state conservatorship. NCUA will operate the credit union with a goal of continuing credit union service to the members and to ensure safe and sound credit union operations.

Service continues uninterrupted at Valley Credit Union and members are free to make deposits, access funds, make loan payments and use share drafts. While the credit union was placed into conservatorship because of declining financial condition, the decision to conserve a credit union enables the institution to continue normal operations with expert management in place. . .

I wish they would shut the F up and just let us do our jobs. Quit trying to scare the public. Nationalizing is not the boogeyman CNBC is trying to sell.

(cross posted over at Daily Kos)