Nationalization Unthinkable
The US prides itself in being one of the last bastions of free enterprise and unfettered capitalism. Until recently the idea of nationalizing banks would have been unthinkable and would be political suicide for any politician advocating nationalization. The recent mortgage meltdown and the ensuing financial crisis have caused even the Bush administration to consider a partial nationalization of several embattled US banks. The partial nationalization of banks is not expected to affect interbank Forex transactions.
The Unthinkable Becomes Reality
After six straight disastrous days of trading stocks gained slightly after an early report that Treasury Secretary Paulson is considering allowing the Treasury Department to take ownership stakes in several beleaguered banks. The banking and credit crisis has surpassed all other economic considerations and the situation became even more serious Wednesday when despite a coordinated rate cut by US and European central banks global markets still experienced losses. Thursday morning (October 9th) the New York Times cited unnamed Treasury officials who stated that the recently passed $700 billion dollar bailout bill allows the Treasury to put cash directly into the banking system.
It is hoped that the direct injections of cash will persuade banks to continue lending while strengthening the banks balance sheets. The Treasury would also have the right to take ownership positions in the troubled banks. At present the Treasury’s plan is unclear and without details on how the plan would work. It is expected that the plan would be voluntary for banks. Moves by both the Treasury and the Federal Reserve have strengthened the US dollar on interbank Forex markets.
Paulson Speaks
The Fed has already injected billions into all but frozen credit markets and will buy commercial paper that corporations issue to obtain short term loans and cover day to day expenses. In a statement Secretary Paulson said, “Uncertainty and a lack of confidence have clogged our basic financial plumbing. While our actions have been aimed at restoring financial markets and institutions, our purpose is to prevent financial market difficulties from further impacting businesses and families across the country.”
US Dollar Strong Despite Crisis
The current global financial crisis has made the unthinkable a reality. The fact that a conservative administration such as the present one would consider even partial nationalization of any industry reflects the seriousness of the current global situation. It remains to be seen what effect this partial nationalization of the US banking system will have on the US dollar on interbank Forex markets. The dollar has been holding its own against other world currencies despite the global financial crisis. Latest reports have the dollar rising against the Euro. Despite the dismal US economy the dollar is still seen as a relatively safe haven by Interbank Forex traders.
