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Economic Review |
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2/23/2009 Are US Banks in the process of being Nationalized? As the stock prices of some of the largest US banks continue to fall nearer and nearer to zero, the alarm bells have been rung for more bailout money where the strings attached to the massive loans are slowly being categorized as nationalization of the institutions. Some may hang on to the idea that it won’t be the case and the majority of the US banking system will remain staunchly capitalistic. In light of the recent Obama bailout however, that hope may be fading. An extensive part of the most recent simulative bailout includes lowering mortgage payments to mortgagors. These lower payments will most likely come in the form of lower mortgage rates on existing loans. Without addressing the moral hazard issue with this, the process of adjusting rates lower on loans strongly alludes to nationalization already. Will mortgage rates now be struck only a few basis points above the prevailing 10 Year note Yield? Will they be artificially set or will banks simply be subsidized to loan money at non-profitable rates? Either way it doesn’t smell like capitalism anymore.
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| Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR |
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