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Bogue Asset Management’s Quarterly Investment Letter      

Financial market history tells us to expect the unexpected; expect to be surprised.  And positive surprises happen too.  Last year was a tragic one, yet global stocks were up over 16%.  In this latest edition of my Quarterly Investment letter I see the current momentum in the market continuing, but it is not without it's risks.  And I'm beginning to see the headwinds of recent portfolio performance turning into a sustained trend.........[See More]

    

How your advisor is compensated does matter.  Lately there has been a blurring of the lines with the use of the term “Fee-Based” to describe how one is compensated.  I’ll tell you why Fee-Based is not Fee-Only and the difference can be substantial: [See More]

 

    

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Bank Nationalization: Is it a Bad Thing?

Mar 31, 2009 05:46 PM  

One of the biggest fears over the past couple of months concerns the issue of nationalizing our banks. The capitalists may be up in arms about this, but it may be a quicker and more efficient way of strengthening our financial system.

Nationalization doesn’t necessarily have to be a dire situation. The FDIC is in its own right is a type of nationalization. The key is that of course it only applies to the bad banks and any takeover should be temporary in nature, held in receivership, restructured, broken up and re-privatized as soon as possible. You really don’t want to chaos of Lehman Brothers again. The bondholders would suffer significant losses and the stock holders wiped out – but that’s the risk that you incur when you buy a company security.

Want a great illustration of how this would work? John Hussman of the Hussman funds has an excellent breakdown of how this would work for bank that was considered insolvent while keeping customers and the taxpayer whole in his weekly commentary. Hussman’s also been a cynic of the bailouts that the banking system has received so far, suggesting that any unelected bureaucrats orchestrating the current bailout process be barred from future employment from the companies that benefit from these actions. With the revolving door of Wall Street to Washington DC and back, he makes a valid point about the inherent conflicts.

Another excellent argument for nationalization was a recent interview that Nouriel Roubini did for the Wall Street Journal. Well known for his predictions of the financial crisis and dubbed “Dr. Doom” for his dire forecasts, he makes a valid case for nationalization and that nationalization is actually a market friendly solution.

In the end, the nationalization solution may sound dire, but it may be a quicker way out of banking crisis. I think it’s better than zombie banks continuing to be mismanaged while sucking away taxpayer resources and prolonging the problem.