Nationalize the Banks?

The New York Times leads off its business coverage today with a question that would make any free market acolyte squirm: should the incoming Obama administration nationalize some of the nation's biggest and most troubled banks, in particular CitiGroup and Bank of America? It may not have a choice, the newspaper observes. "Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders." And then there is Bank of America. The megabank sealed an emergency $20 billion cash injection from the Treasury Department just after midnight Friday, the Wall Street Journal reports. The Treasury "will also backstop about $118 billion of assets at the bank," the newspaper writes, crucial as BoA absorbs onto its books the massively indebted Merrill Lynch, which it acquired in September. BoA has now received $45 billion in federal funds since the deal was announced, the same amount as Citigroup. The WSJ also writes that shareholders are fuming over why BoA CEO Kenneth Lewis neglected to inform them of the extent of losses its new problem child, Merrill Lynch, was carrying before the shareholder vote last month. They've responded by pummeling the stock, down 40 percent in the past seven trading days.

The Obama administration is not alone in contemplating partial nationalization of the banking sector. The Irish government was forced to nationalize Anglo Irish Bank on Thursday night, the Financial Times reports, the country's third largest lender, as panicky depositors began to withdraw their savings in waves amid fears the bank could collapse.

In a long anticipated move, the Senate on Thursday widely approved releasing the second tranche of the TARP funding, "granting President-elect Barack Obama virtually unfettered authority to spend $350 billion to revive sluggish credit markets and help millions of homeowners avoid foreclosure," the Washington Post writes. BoA is already lined up for a big piece of that money, the newspaper adds. Another $50 billion to $100 billion will go to distressed homeowners to avoid further foreclosures, according to the WSJ. It's a timely gesture. RealtyTrac revealed home foreclosures soared by 81 percent in 2008, "ensnaring 2.3 million U.S. households during the year," the Detroit Free Press writes.

The House was busy yesterday as well. Its leading Democrats "rolled out the details of an $825 billion economic stimulus package to combat what they called 'a crisis not seen since the Great Depression,' " the WSJ writes. The plan calls for $275 billion worth of tax relief and $550 billion in big ticket spending, such as helping states with education, transportation, and health care funding. The newspaper adds, "its immediate economic impact is unclear and the plan faces hurdles before becoming law."

Intel's fourth quarter profits were down 90 percent from the same period last year, CNN Money reports. The performance was in line with Wall Street estimates and offers a further indication (as if we needed it) that the once-thriving tech sector is in serious trouble. Staying in Silicon Valley, tech commentators are all abuzz speculation on life at Apple after Steve Jobs. Concerns about the long-term health of CEO Steve Jobs, "underscores the need for clear communication of a well-defined succession plan by Apple's star-studded board of directors," writes Business Week. At the heart of Apple's problem lies the fact that Jobs appears to the catalyst for so much of what the company does well, be it deal-making, shaping a positive working culture and creating quality products both in terms of design and performance, writes the NYT. With no single iconic leader to fill the void, some Apple vets worry for the company's future. "Apple can coast for several years and still do very well,” Paul Mercer, who worked for Apple in the '80s, told the NYT. "But it’s very risky, and without Steve, the long term is untenable." With the uncertainty over Jobs' health wiping billions off Apple's share price, some investors are considering lawsuits, reports the AP. "The key question facing Apple's legal team now will be whether Jobs' and Apple's disclosures revealed enough at each step," it writes.

Crumbling banks and a spluttering tech sector have kept the deeply dysfunctional auto industry off the front pages for a few days but GM makes a splash this morning with news that it hopes to sell only 10.5 million vehicles in the United States in 2009, "a number it had labeled its worst-case possibility in the restructuring plan submitted to Congress last month," writes the NYT. Toyota also sees a tough year ahead will reduce output at all U.S. and Canadian plants reports Bloomberg. Even the nascent "green" car industry needs help. To develop a sedan that could have broad appeal in the United States, Tesla Motors says it "needs $450 million in loans from the Obama Administration," writes Business Week.

And, finally, the WSJ leads off its business coverage today with an untold version of the search engine wars. In essence, Microsoft killed off its own Google-killer back in 2000, the newspaper writes. That product was called Keywords, and it had a queue of advertisers already lined up when it pulled the plug. Then, in a better-known development, it passed on the idea of acquiring Overture, the pioneer in paid search. Yahoo summarily gobbled up Overture, making its search business so enticing to the software giant. Why all this revisionist history? Microsoft CEO Steve Ballmer is determined to "reverse one of his biggest mistakes," the newspaper writes.