My colleague J.W. Verret has an interesting article on Forbes.com on the dangers of public ownership of banks and why government investment may be "self-defeating" in returning them to financial health:
This is because governments have two unique qualities: immunity from insider trading laws and a political interest in using their shareholder power to pander to special interests.
A healthy share price makes for a healthy bank. But healthy share prices require healthy profits. When governments become powerful shareholders in companies, the profit motive is inevitably watered down.
After European governments privatized government-run industries in the 1980s they maintained powerful equity positions in the privatized firms. Those companies were twice as likely to need to subsequently obtain subsidies and bailouts at the public trough.
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Another important consequence of the bailout is that Treasury's access as a regulator to inside information about banks makes it the ultimate inside trader of stocks in financial institutions. Luckily for the federal government, it has sovereign immunity from insider trading laws.
The market will significantly discount the value of banks in which Treasury is a shareholder. Since the dominant player in that market has the opportunity to engage in insider trading, it makes little economic sense for other investors to buy bank shares. Why would anyone want to play the game when they know the game is rigged?
To protect against insider trading liability, corporate executives file "10b-5 plans" that detail future share sales. Treasury should be bound to the same kind of plan to assure investors that it will not use inside information to trade its shares.
Because the government doesn't like to make money. It doesn't like to take taxes either.
more correctly "Government Ownership"
This will likely be another vote buying mechanism in elections: "vote for me and I will make the govt bank forgive loans made to the 'working class' people"
If the government is so interested in making money that it will risk damaging it's reputation in financial markets by selling shares based on inside information about future declines then presumably we can count on government influence to strongly encourage profitable practices.
On the other hand if we think that the government will put political considerations and handouts to special interests above considerations of profit then we can expect it to do the same in regards to screwing over the people who buy minority stakes. After all some of these people are likely to be politically powerful and connected.
Ultimately I'm more concerned about the government giving away value to influential individuals/corporations than stealing it by gaming sales with inside information.
The banks are already publicly owned, and publicly traded. The alternative being argued against is state-ownership. The public is not (yet) merely the state, at least not here.
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