Speaking in Dana Point, California, David Blitzer, chairman of the index committee at ratings agency Standard & Poor's, warned that the US government will have to spend billions more dollars to alleviate the impact of the deepening recession, despite the frustration of the US public at bailouts for financial institutions and individuals.
"I don't think the federal government is big enough to nationalise all the US banks, they might try but they won't succeed. On the other hand, you can't just nationalise some of the banks," said Blitzer. "Suppose Citigroup and Bank of America were nationalised, what happens to the number three bank in the US? Who will do business with bank number three if numbers one and two are guaranteed by the US government? No one. And if you nationalise bank three, what happens to bank number four, and so on."
Blitzer's comments served as a riposte to earlier claims by Nouriel Roubini of the Stern Business School at New York University, who had argued that nationalisation is the only effective and cost-effective means of siphoning illiquid assets from the rest of bank balance sheets and coercing institutions to resume lending.
Blitzer went on to speculate that the relatively short and shallow downturns of 1991 and 2002 only served to encourage more risk-taking by financial institutions as they grew blasé about their resilience to economic contractions.
The week on Risk.net, July 7-13, 2018Receive this by email