U.K. Raises Bank-Stake Issue for an Averse U.S. Cultural, Structural Differences Drive Asset Buys Here

By Hopkins, Cheyenne | American Banker, October 9, 2008 | Go to article overview

U.K. Raises Bank-Stake Issue for an Averse U.S. Cultural, Structural Differences Drive Asset Buys Here


Hopkins, Cheyenne, American Banker


Byline: Cheyenne Hopkins

WASHINGTON - The United States and the United Kingdom - two countries, similar problems, different solutions.

While the British are moving to invest capital directly into their largest banks, U.S. government officials are taking a broader approach in buying shaky assets from a variety of firms.

The choices highlight cultural and structural differences between the two nations.

Observers said the U.S. is reluctant - at least so far - to take the same path due to differing views of the underlying cause of the crisis and the fact that its financial system is much larger. But the most powerful factor may be cultural - the U.S. is simply adverse to government ownership of private enterprises.

"The Brits are quicker to own equity in a private company than we have been," said Mark Flannery, a finance professor at the University of Florida. "The Brits are more used to nationalizing things."

The U.K. has already nationalized two mortgage lenders - Northern Rock and Bradford & Bingley. Nationalizing a bank in the U.S. "conflicts with our basic philosophy with how we want to manage our economy," said George Kaufman, co-chair of the Shadow Financial Regulatory Committee and a professor at Loyola University. "It's going all the way to socialism. Once it becomes publicly owned it becomes difficult to be privately owned."

There are signs that resistance is easing, however. The government seized Fannie Mae and Freddie Mac on Sept. 7 and agreed to invest $80 billion in American International Group. The Federal Deposit Insurance Corp. was poised to take a $12 billion equity stake in Citigroup Inc. before its deal for most of Wachovia Corp. was derailed.

Some lawmakers on Wednesday began calling for the U.S. to consider following the U.K.'s lead.

"Many experts agree that re-capitalizing U.S. banks directly would be an effective and less costly way to address the frozen credit markets," said Sen. Charles Schumer, the chairman of the Joint Economic Committee, in a press release. "London may now provide a key test case for a proposal that has a lot of promise."

There is also historical precedent for such a move.

Lasse Pedersen, a professor of finance at New York University, pointed to the Reconstruction Finance Corp. created during the Great Depression as an instance where the government bought preferred stock in banks. Banks were initially reluctant to participate, but ultimately the program purchased $782 million of bank preferred stock in 4,202 banks.

"The U.S., in the AIG deal for instance, the government also has equity participation, and I believe that going forward when the U.S. is going to lend they will also be able to have equity participation," he said.

Still, when Treasury Secretary Henry Paulson developed a rescue plan to buy troubled assets equity investment was not on the table. Treasury eventually - and reluctantly - agreed it would consider taking stakes in companies selling assets to the buyout facility created by a Sept. 3 law.

Scott Talbott a senior vice president with the Financial Services Roundtable, said the notion of the government more broadly investing directly in financial institutions was considered during debate on the bailout bill, but was rejected because policymakers were afraid of where it could lead.

"The problem with direct purchase of shares by the government is you create conflicts of interest," he said. "Suppose a bill comes up on the floor that would benefit the industry or the government; or that company it has an ownership stake in. It has to take into account the government's interest as an owner and the taxpayers' and those interests may be at odds. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

U.K. Raises Bank-Stake Issue for an Averse U.S. Cultural, Structural Differences Drive Asset Buys Here
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.