Friday, February 20, 2009

Senator Dodd Calls For Nationalizing Some Banks

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Senate Banking Committee Chairman Christopher Dodd said that some banks may have to be nationalized for "a short time" which would help these banks, such as Citigroup Inc. and Bank of America, to survive the current economic situation.

The stocks of both Citigroup and the Bank of America fell dramatically today. The Bank of America is one of the Mohegan Tribe's principle bankers.

Bank of America Chief Executive Officer Kenneth Lewis said in statement that "speculation about nationalization is based on a lack of understanding of our bank’s financial position as well as a lack of appreciation for the adverse ramifications for our customers and economy."

Treasury Secretary Timothy Geithner’s refusal to state his plans regarding either bank is making investors nervous. The price of stock in Bank of America has reached a 25-year low and stock in Citigroup reached an 18-year low today.

Lewis tried to assure investors that his bank wouldn't be siezed by the government. Lewis issued a statement that said Bank of America "is profitable with strong levels of capital and liquidity."

The Obama administration doesn't welcome the idea of nationalizing banks. According to a White House spokesman, a "privately held banking system is the correct way to go. That’s been our belief for quite some time, and we continue to believe that."

The Dow Jones Industrial Average dropped below its lowest close since 1997 earlier today after Senator Dodd made remarks about the need for some banks to be taken over by the government.

The amount of troubled loans being held by banks suggests that many of the country's biggest banks may be insolvent. The reason many banks' balance sheets continue to include troubled loans is because the banks are not willing to sell thes "toxic" assets at the prices being offered by hedge funds and other investors.