This is what I think is happing with regard to BAC and C recently, tell me if you agree/disagree:
The market knows BAC, and C are insolvent. The market also knows that the government won't let them fail since they are too big to fail. The market is desperately seeking a solution such as nationalization for these banks. This is what the market wants, clarity that the nation's largest banks will be sound.
Geitner won't let BAC or C fail. However, he doesn't favor nationalization for them, as we have heard from the White House. The reason is, if they were nationalized everybody would want to have money in the safe nationalized banks, possibly collapsing other banks. Thus Geitner maintains a position of strategic ambiguity, much like Israel's policy of ambiguity with regard to nuclear weapons.
The market knows BAC, and C are insolvent. The market also knows that the government won't let them fail since they are too big to fail. The market is desperately seeking a solution such as nationalization for these banks. This is what the market wants, clarity that the nation's largest banks will be sound.
Geitner won't let BAC or C fail. However, he doesn't favor nationalization for them, as we have heard from the White House. The reason is, if they were nationalized everybody would want to have money in the safe nationalized banks, possibly collapsing other banks. Thus Geitner maintains a position of strategic ambiguity, much like Israel's policy of ambiguity with regard to nuclear weapons.
