So the purported plans for the taking of a 40 per cent government stake in Citigroup, while roiling shareholders, to my small mind tastes a lot like our collective future.
The floating of the prospect of a partial, rather than full, nationalization in recent days seems to be a roadmap of sorts for the near future of our financial sector. It appears likely that the leaking of this plan was anything but unwanted by the powers that be. While personally I would love to see shareholders who have invested in failed banking firms fleeced, there are certain advantages to a program of partial nationalization.
Firstly, such a plan would placate shareholders fearful of the prospect of their ownership stake evaporating through government fiat. The conversion of non-voting preferred shares to common stock--with attendant voting rights--would help to bolster stock prices and attract investment. A controlling stake in insolvent firms by the government, with its promise of management turnover and reorganization, would almost certainly restore faith in firms currently being treated as lepers by Wall Street.
Secondly, partial nationalization of firms deemed insolvent, or seen as soon to be, would help to reestablish faith in the system at large. While a full nationalization would signal to markets that the whole system is gangrenous, a partial nationalization--with the government taking an ownership stake in proportion to a firm's level of insolvency--would help to price financial sector stocks. Citigroup, with its massive load of mortgage-backed securities, for instance, would require a higher percentage of government ownership while Wells Fargo, with less exposure to toxic derivatives, would require a lower percentage. A program of this sort, of course, would go a long way to establish pricing for banking firms--an individual firm's level of insolvency could be gauged by the percentage of government ownership taken. Stock prices would obviously rise or fall accordingly.
Thirdly, a partial nationalization would--partially--skirt the aversion politicians feel to the "N" word. The argument could be made by our current Democratic government that such an ownership stake is necessary to maintain the overall solvency of the system, and that the acquired common shares could be sold off at a profit in the future. Thus our Democratic executive and legislative branches could fend off the inevitable attacks by Republicans that they are bringing "socialism in our time."
Seems the magic formula has been found and it smells a lot like...Citi. Welcome to the future, one and all.