COMMENTS: How a Bank Goes Bankrupt at $0/Share

The Story of the Day was the nationalization that did not happen. All through the morning, traders on Wall Street bet that the federal government would take over two of the country's hugest banks. If that were to happen, their shares would be wiped out, value zero. Citigroup and Bank of America were heading in that direction, as low as $1.61 and $2.35 respectively. The afternoon started with this declaration from the White House press secretary: "A privately-held banking system is the correct way to go." It was enough to halt the sell-off. The two banks ended the day at $1.95 and $3.79. All three newscasts led with the banks' near-death experience. ABC again had a substitute anchor, this time George Stephanopoulos of This Week.

It may have been only a stay of execution, CBS' Anthony Mason reported. The Treasury Department' stress test "will begin imminently, aimed at exposing the extent of bad loans on their books." CNBC's economist Steve Liesman calmly reminded NBC anchor Brian Williams that bank nationalization happens "almost every weekend"--just not to banks as big as Citi or BofA. When the FDIC takes over an insolvent bank, "they sell the deposits; they get rid of the assets; sometimes they hold on to some assets. It is a normal process. It is basically how a bank goes bankrupt."

ABC's David Muir picked up on press secretary Robert Gibbs' preference for privately-held banks. Was he willing to go further and say that President Barack Obama would never nationalize banks? "He would not say that. Economists say that is because the White House must hold open the option of taking some banks over, cleaning their books, infusing them with capital and getting them lending again."

On NBC, Trish Regan of CNBC reassured those of us who do not happen to own shares in these perhaps doomed companies: "As worried as shareholders in these banks may be, people that have accounts in them--whether that be a savings account, a checking account, a money market, a CD--they really do not have to be worried." The FDIC insures accounts up to $250,000.


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