Reid: Don't call it nationalization
Lisa Lerer – Mon Feb 23, 9:42 am ET

Senate Majority Leader Harry Reid said he supports efforts of the federal government to dramatically expand its stake in Citigroup, but wants people to back off from the dramatic rhetoric.

“It’s not nationalization, it’s protecting the taxpayers’ interests,” Reid (D-Nev.) told MSNBC’s Morning Joe program on Monday.

“In the bailout, the TARP, that we made sure the American taxpayer had a way of getting paid back for their investments,” Reid said. “That’s what this is all about and it’s the right way to go.”

The federal government is in talks to take as much as a 40 percent stake in the struggling bank’s common stock, the Wall Street Journal reported on Sunday. Republicans have criticized Democrats for moving closer to bank nationalization – something White House Press Secretary Robert Gibbs signaled that the administration signaled would oppose on Friday.

“My main concern is that Washington is sending mixed signals to Wall Street, which is causing private capital to remain on the sideline," said Rep. Scott Garrett (R-N.J.), a member of the House Financial Services Committee. "Until investors are clear about the government’s intention with regard to future market interference, confidence will not be restored to the financial sector.”

The idea, reported the Journal, was originally proposed to the government by Citigroup. On Sunday, Treasury spokesman Issac Baker indicated to Politico that the administration would seriously consider the proposal.
“We are open to considering a request to [convert preferred stock to common shares] if the institution and its regulator believe it would promote the long term stability of that institution, and if we believe it's in the best interest of long term stability of our economy and financial system."

The U.S. government infused $45 billion into Citigroup last fall. The new intervention would not cost the government additional money but instead would convert existing preferred shares held by the government into common stock. But a large ownership stake by the U.S. government could also encourage other struggling banks to request similar aid, and the move would only fuel the idea that the government is in the process of nationalizing faltering banks.

Banks stocks rose in premarket trading early Monday morning, as investors welcomed the idea. The news that the government could expand its stake in Citigroup comes as federal regulators announced they will begin the new "stress tests" for banks on Wednesday that would lead to more taxpayer money for those institutions deemed at risk.

The tests are part of the new financial stability plan announced by Treasury Secretary Timothy Geithner on Feb. 10 and are designed to ensure banks can withstand a variety of bad economic developments. "Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands," the Treasury Department, the Federal Reserve and other top banking regulators said in a joint statement earlier this month.

Reid on Monday morning argued that the federal government has been involved in private sector for decades – taking over large chunks of the railroad and the highway system when those industries got into massive financial trouble. “I think what we are doing in banking now at a time of distress is the right thing to do and we’re getting very close to stabilizing the banking industry," Reid told MSNBC.

Patrick O'Connor and Victoria McGrane contributed to this report.

If this is the first step (however clumsily it's being taken...) toward eliminating the Federal Reserve, I'd ALMOST be on the bandwagon...

But, with this band of Keystone Kops behind the steering-wheel...

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M. G. Burg
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“I didn’t really say everything I said.”
. . . . . . . . . . . . . . . . . . ~ Yogi Berra ~

When do the lawsuits start from the guys who DIDN'T get bailed out? Doing something whether right or wrong is less important than treating everybody equally.

The irony would be a minority owned business screaming for help and then suing for discrimination if they didn't get it.

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MB-less