We quoted a bit from Alan Blinder’s NYT piece in the post just below. Let’s add a little more — this point really gets to the heart of the matter about how not to try stabilizing the financial institutions:

Suppose we nationalized four banks. Bank Five would then find itself at a severe disadvantage in competing for funds with the government-backed quartet. Forced to pay higher interest rates to attract depositors and other creditors, its profitability would suffer. Soon, Bank Five might start looking like a candidate for nationalization, too — followed by Banks Six, Seven and so on…As stock traders began to contemplate the nationalization of Banks Five, Six and Seven, their share prices would tank, and short-sellers might consign the companies to an early grave.

This is precisely the point we’ve been making for some time. A real rescue and recovery plan is going to have to stop seeking to punish certain executives and start investing serious amounts of low cost Tier I capital — or we’re all kaput. It is peculiar and inexplicable that the Obama administration keeps taking steps that wipe out bank shareholders and contaminate and kill the overall market, just in the way Blinder described.

Is it ignorance, ideology, polling data or something else that is at work in the very strange and unserious behavior of the Obama administration? (Hmmm, maybe it’s not the polling data.)

This entry was posted on Tuesday, March 10th, 2009 at 5:07 am and is filed under business, Democrats, General, Polling. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.