Time To Nationalize Banks?

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Once it was almost a dirty word, but it seems more people are throwing their support behind bank nationalization. And more of them are Republicans!

One of the biggest surprises in the call for nationalization comes from Sen. Lindsey Graham. Nationalization is an option for dealing with troubled U.S. banks if they fail the U.S. Treasury's "stress test," he said on Wednesday.

Graham told Reuters the U.S. government had already spent over $40 billion to try and rescue Citigroup , but he said the bank's worth currently was estimated at about half that. Likewise some $45 billion in taxpayer dollars had been spent on the Bank of America , but its value was estimated at only $25 billion, Graham said.

If institutions are truly "zombie banks," he said, one option for the government "would be go in, take the bank over, restructure it, break it up, sell it, get the money back. And you can call that nationalization if you want to."

Graham said others were touting bank nationalization as an option, including Alan Greenspan, the former Federal Reserve chairman. In an interview published on Wednesday by the Financial Times, Greenspan said nationalization could be the least bad option left for policymakers.

The U.S. Treasury is expected in coming weeks to subject up to 25 banks with assets exceeding $100 billion each to "stress tests" to decide which banks need additional capital. "We need to keep option three (nationalization) on the table for any bank that fails the stress test," Graham said.


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