Morris Mystery Questions

The FBI's probable cause affidavit filed in the criminal case against now-deposed sheriff, Charlie Morris, describes a grave and enduring scheme of fraud, theft and money laundering by Okaloosa County law enforcement personnel. But it must be said the scheme also was breath-takingly idiotic.

No surprise, there. Criminals are stupid. That explains why they commit crimes.

Morris allegedly enlisted at least six other county sheriff's office employees in the scheme -- his administrative Teresa Adams, and five others. Some, if not all, appear to have been, themselves, deputy sheriffs.

The larger a conspiracy becomes, of course, the more difficult it is to keep secret. Even criminals know of Mark Twain's admonition that "two can keep a secret -- if one of them is dead."

It seems some of Morris' subordinates may have been a little late in coming to Jesus (or rather, in this case, the FBI). And that raises more questions than the prosecution has yet to answer. Here are four of them.

1. How many sheriff's office employees were involved?

For one, how many employees will the government ultimately claim Sheriff Morris used to launder money? How many of his subordinates received bogus "bonuses" and gave cash kick-backs?

We know of six subordinates, counting the administrative assistant who is now a co-defendant. But did every co-conspirator turn state's evidence or were there more?

Until that question is answered, every employee in the county sheriff's office will fall under the shadow of public suspicion.

2. How long has this been going on?

How long will the government claim Morris' money laundering conspiracy persisted? The "probable cause" affidavit suggests a chronology that reaches back at least to last Fall:

CW-2... provided me with a stack of pay stubs documenting his/her 2008 salary and bonus payments from the Okaloosa County Sheriff's Office. CW-2 then noted that approximately six of the stubs had a payment marked "PERFORM" under the "EARNINGS" column and the name of his/her bank under the "DEDUCTIONS" column. When taken together, these denoted the previously-described bonus payments paid into his/her personal checking account (including some legitimate bonuses which did not require a kickback). CW-2 then noted that... his/her salary with the OCSO with the addition of the bonus payments had increased by over $30,000 since the prior year.

The affidavit also asserts "Morris approached" another witness, identified as CW-3, "sometime in September 2008" to ask "if he/she would be willing to accept a $5,000 payment into his/her checking account, then subsequently withdraw the funds and given them back to Terry Adams."

Indeed, September seems to have been an especially needy month for Sheriff Morris. The FBI affidavit details yet another informant, CW-4, who also was approached in that same month:

Specifcally, CW-4 relayed that around the end of September 2008... the Sheriff walked into CW-4's office, shut the door, and informd CW-4 that he/she would actually be receiving a bonus of $11,000, and not $6,000 as previously stated. Morris then informed CW-4 that he/she would need to take $5,000 of that bonus and give it back to Terry Adams so that he (Sheriff Morris) could then give it to charity.

3. Why the urgency and escalating sums in January 2009?

We can safely assume the "charity" excuse Morris is alleged to have given his subordinates was nonsense. Legitimate charities aren't accustomed to raking in bags of cash.

Gratifying as it would be for the people of Okaloosa County, it also seems unlikely that Morris simply squirreled away the cash for a rainy day. He's not likely to show up in court and give it all back with a smile and a shrug.

Moreover, we think the circumstances described in the FBI affidavit strongly suggest that Morris was experiencing some sense of urgency in January 2009. The phony "bonus" money paid to CW-2 suddenly escalated to $15,000. Apparently, however, Morris wasn't used to dealing with dirty money in such denominations.

When he later awoke (or was told by someone else) that a cash transaction of $12,000 would require CW-2 to file a "currency transaction report," instead of the usual tactic some hope to use in hiding the cash transaction by stringing the kickbacks out into smaller payments over a longer period of time, Morris instructed his subordinate to proceed, anyway, but use a cashier's check instead. He wanted the money and he wanted it right then.

Why the urgency? That brings us, inevitably, to the granddaddy question of all.

4. Who ultimately received the loot?

Morris used the money to pay someone for something. That's what money is for. But who was it? And what was it for? As always, we need to follow the money.

Among the common, theoretically possible answers are the money wound up in the hands of a drug dealer, a bookie, a mistress, or a gambling casino. Sadly, perhaps, bookstores and art galleries almost never make the list.

But there is one other possibility we can imagine. It's one that would explain why Okaloosa County sheriff's Major Larry Donaldson cautioned supervisors yesterday, "This will get worse before it gets better."

It also broadly fits with the only two specific kickback months -- September 2008 and January 2009 -- which are mentioned in the FBI's "probable cause" affidavit. And, it would go a long way toward explaining the apparent urgency of the unusually large January kickback.

Can you think of a prominent, powerful Okaloosa County politician who was soliciting money last Fall as he ran for reelection? Someone, perhaps, who unexpectedly needed even more money in January when he resigned his job and learned that he needed a lawyer because he'd soon be appearing before a grand jury?

Someone, say, whom Morris is known to have strongly supported? Someone who was specifically on his mind in January?

The Northwest Daily News in Ft. Walton Beach hints at the answer in its latest editorial. The "mighty," the paper says, "sometimes... fall two at a time."

Update
2-28 pm

A Panama City television station is reporting that Okaloosa County's Chief Deputy Sheriff, Mike Coup, has been placed "on paid administrative leave as a precaution, due to the ongoing federal investigation into the allegations against Morris and Adams."

Friday Bank Failures

Friday bank failures are like Friday cat blogging, only with insolvent banks clawing at the pant legs of Americans and peeing on the nation's carpet.

Obama Dodges a Scandal

President Obama's once-upon-a-time designee for Commerce Secretary, Senator Judd Gregg (R-N.H.) reportedly... supposedly... allegedly turned it down for ideological reasons. The Republican claimed, in effect, that he was too conservative to stomach Obama's reform agenda.

Maybe, maybe not. Either way, Obama lucked out. Turns out Gregg was just another corrupt rich guy on the make to get richer at taxpayer's expense.

These days, that may be a requirement for joining the Grand Old Party:

President Barack Obama's former nominee to become commerce secretary, Sen. Judd Gregg, steered taxpayer money to his home state's redevelopment of a former Air Force base even as he and his brother engaged in real estate deals there, an Associated Press investigation found.

Gregg, R-N.H., personally has invested hundreds of thousands of dollars in Cyrus Gregg's office projects at the Pease International Tradeport, a Portsmouth business park built at the defunct Pease Air Force Base, once home to nuclear bombers. Judd Gregg has collected at least $240,017 to $651,801 from his investments there, Senate records show, while helping arrange at least $66 million in federal aid for the former base.

Citibust Bank

That idea didn't go so well for the taxpayers, did it?!

Conversion price = $ 3.25 per share. Friday's closing price - $ 1.50 share.

In eight hours U.S. taxpayers lost more than 50 percent of their investment in Citibank. Let's see, now .... $25 billion in preferred shares x .54 loss on the day = $11.5 billion left in preferred value. Zombie!

Law and Disorder in the Panhandle

Dhunk-dhunk. In Okaloosa County's criminal justice system, there are two separate yet equally important groups: the county sheriff, Charlie Morris, who investigates crimes and the county sheriff, Charlie Morris, who gets prosecuted for them. These are his stories:

Okaloosa County Sheriff Charlie Morris has been arrested on federal theft-bribery charges and suspended by Governor Charlie Crist.
* * *
Morris faces charges of theft or bribery concerning programs receiving federal funds, wire fraud, deprivation of rights to honest services, engaging in monetary transactions in property derived from specified unlawful activity and conspiracy to commit the aforementioned offenses.

Update
A Dothan, Ala. TV station is reporting, "Sheriff Morris was arrested by federal agents in Las Vegas, Nevada, and is expected to make an initial appearance in United States District Court for the District of Nevada Friday."

Thereafter, he is expected to be returned to the Northern District of Florida.

According to the complaint filed in federal court, Morris, with the assistance of his Director of Administration and Finance, [Teresa] Adams, created fictitious bonuses to sheriff’s department employees.

The complaint alleges the employees were directed to return all or a portion of the bonuses in the form of cash and cashier’s checks under the pretense that these returned funds were to be used for charitable purposes.

More update
Morris currently is serving as President of the Florida Sheriff's Association.

Yet more update
According to older news reports, Sheriff Morris is a huge supporter of recently-resigned state senator Ray Sansom. Last month, the Destin Log reported, "Okaloosa County Sheriff Charlie Morris, a Republican, wrote that newspaper reports did 'not paint a true picture' of Sansom or his work to enhance public safety in Northwest Florida."

Sansom himself is presently under investigation for corruption charges by a Tallahassee grand jury.

Still more update
The U.S. Attorney's office press release confirming the arrests quoted, above, by the Dothan TV station, adds "A criminal complaint is merely a charging instrument. Each defendant is presumed innocent unless and until proven guilty in United States District Court."

OK. We're down with that. The sheriff is entitled to the presumption of innocence on all criminal charges. Absolutely.

But there's no reason to presume him smart. Directing employees to refund bogus "bonus" checks in cash? Would any deputy sheriffs, detectives, or investigators have thought something might be fishy with that? Ya' think?

New Bailout Rules

Bank of America CEO Ken Lewis blatantly refused yesterday to produce information subpoenaed by New York Attorney General Andrew Cuomo.

Cuomo was demanding a listing of "just who got what out of $3.6 billion in bonuses given to Merrill Lynch employees before the banks merged late last year." Those bonuses were rushed out by ex-Merrill Lynch executive John Fain, with considerable help from U.S. taxpayers.

Turns out, however, that Lewis himself -- as Fain's boss -- personally authorized in writing up to $5 billion in bonuses to the Merrill Lynch execs, according to the New York Daily News. Not only that, but he lied to Congress about it earlier this month:

Bank of America CEO Kenneth Lewis told Congress the bank had "no authority" to stop the bonuses, but he didn't reveal that he'd signed a merger document authorizing up to $5 billion in Merrill "incentive payments."

To add insult to perjury, Lewis used one of Bank of America's the taxpayers' private jets -- the very one shown above -- to fly in just so he could obstruct the justice system in person.

All of this inspires us to suggest a few new rules for the bank bailout program:

Rule No. 1: When a duly authorized state or federal law enforcement official who is investigating bank mismanagement asks for information about who personally profited from use of U.S. taxpayer bailout money, the bank CEO must either give it up promptly or he will be fired.

Rule No. 2: When a bank CEO is caught prevaricating, lying, or giving misleading testimony to a congressional committee investigating the misuse of U.S. taxpayer bailout money, he must either resign immediately or be fired.

Rule No. 3: Since the Bank of America "private jet" is so big, the plane will not be allowed to take off if there are any empty seats. Excess seats are to be offered to the general public on a first-come, first serve basis.

Rule No. 4: If it happens that the banker used the jet to get where he perjured himself, he must walk home.

Rule No. 5: In any event, every bank CEOs who seeks bailout money from the federal government must first deposit all of his personal financial holdings with the same bank, to be held in trust during the CEO's term of office. If he screws up, we get it all.

Now, there you have some "job incentives" that are incentives.

Citigroup Stock Swap

Bloomberg has the early news today. Essentially, Investor Uncle Sam is swapping Citgroup stocks.

This resembles turning the taxpayers' somewhat safer investment into a highly risky one, except that when they are both doomed to be worthless investments, Uncle Sam will still wind up with the bank.

Here's a summary:

• Our -- that is, the taxpayers' -- 8% stake of preferred shares in Citogroup will be exchanged for a 40% share in common stock. This really doesn't matter much (see above).
  
• The bank is suspending all dividends to both common and preferred shareholders. This doesn't matter much, either, since everyone knows Citigroup has no money left with which to pay dividends.
  
• The board will be reorganized just as soon as the drunken slumber of the old board can be interrupted.
  
• A "majority" of the new board members will be "independent."Independent of Wall Street thinking? We'll see, but don't count on it.
  
• And, "the U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York- based company last year."

Emphasis on the "immediately." Citigroup is a zombie bank. This latest is merely another half-step in Treasury Secretary Tim Geithner's piquaresque adventure of going through every capitalist contortion to prop up the insolvent mega-bank without nationalizing it. It won't work.

Heck, it hasn't worked. Use whatever word makes you comfortable -- stock swap, nationalization, receivership, insolvency, limbo, purgatory. The fact remains, the U.S. taxpayers now run, and effectively own, Citigroup.

Geithner just can't bring himself to tell the other 60% stockholders that their stock is worthless.

Kenneth the Page of Louisiana

Who could have predicted that Bobby ("Kenneth the Page") Jindal lied when he was addressing the nation after President Obama the nation the other night?

Also, Courtesy of TPM:

Local Stimulus Questions

Rick Outzen at his Independent News Blog is passing along the rumor that "the City of Pensacola failed to get on the 2008 U.S. Conference of Mayors report of 'shovel-ready' projects."

Embarrassing? At first glance, maybe. But it isn't clear to us this means much at all.

The Mayors developed their "shovel-ready" projects list last year, well before the "American Recovery & Reinvestment Act" was passed last week. Moreover, "detailed guidance" on how the funds will be distributed is still 30 to 60 days away. Florida officials were still reading the bill as of a few days ago.

As the worthy web site Stimuluswatch.gov points out:

If a city did not include its "shovel-ready" projects on that [2008] list, you won't find it here. However, this does not mean that cities that are not included here do not have projects they'd like to see funded. Once the stimulus bill passes, cites will make requests for federal grants, and we will likely see grants to projects not listed on this site.

Too much remains to be known about how, when, to whom, and for what the stimulus money will be distributed.

But while we're on the subject, here's another question: since Pensacola Beach still is not, officially, a city or a state, does that mean it isn't eligible for any stimulus money? Or, does it just mean that we won't get any because Escambia County intends to hog it all for the mainland?

A Cartoonist's Tale

Word reaches us that Bill Burke, noted cartoonist for the Cape Cod Times and freelancer for Mad Magazine among many others, died last week following a brief illness. He was too young and full of laughter for this to happen.

Burke was a close friend of a relative of ours on Cape Cod. While we didn't know him personally, over the years we certainly heard a lot about him and followed his career with great interest.

In fact, we were privileged to receive as a Christmas present an incidental doodle tossed off by Bill Burke just a few years ago. It was typical Burke: profane, a little obscene, hilarious, and yet thought-provoking.

The story is brief. Our relative, as was his frequent habit, stopped by Burke's Cape Cod home one morning for coffee. On a side table he happened to spy a copy of The Watchtower, that ubiquitous publication of Jehovah's Witnesses that clutters many a doorway. Whether you are religious or not, all of us should agree that Jehovah's Witnesses is a courageous sect that, as Wikipedia notes, has "had a major influence on U.S. constitutional law concerning civil liberties and conscientious objection to military service."

Our relative glanced at The Watchtower and at first didn't think much of it. Knowing Billy's agnostic predilections, he assumed, as anyone might, that Billy had found the handout inside his door and just tossed it on a table.

Then he did a double-take. At some point, Burke must have been idly doodling on the cover; probably as he was contemplating the phenomenon of hypocrisy -- that vast gulf between what people say and what they really think. It's a common theme for many of the better cartoonists of our era, and certainly was a favorite of Burke's.

Lucky for us, when he saw how heartily our relative was laughing at the unconscious doodle, he happily handed over his Watchtower to our relative, who later packaged it as a Christmas present for us. We consider it one of the more memorable holiday gifts we have ever received:

"Oh, God"

We've not heard Louisiana governor Bobby Jindal speak before. So, we were taken aback last night when some unknown at MSNBC muttered, "Oh, god," as he swept down the hall of that mansion to deliver the Republican response to Barack Obama's address to Congress.

The Huffington Post says, "Honestly, it would be about fifteen whole seconds before that reaction was really appropriate." No, more like five. "Amateurish" and "laughable"? That's wa-a-ay overly kind.

We thought it was puerile, fatuous, and insulting to everyone over the age of five. Or, as Gawker puts it, Jindal "sounded creepily like a monologue from Kenneth the Page, 30 Rock's bewildered hillbilly."

Worse, as John Amato points out, he didn't have straight even the few facts he sing-songed. There is no "levitating train" in the Obama administration's stimulus bill. Jindal came across, as Digby says, like "a hypocritical, lying jackass."

A single really wretched speech doesn't necessarily doom a politician, one supposes in this era of short attention spans. But with that crooked smile of a used car salesman, moronic delivery style, and fantastical supposed facts, Bobby Jindal now joins the very exclusive club of people who can make Sarah Palin look smart by comparison.

Dogan in the Doghouse

Because little Reggie Dogan didn't do his homework, and was rude besides, looks like he's been kept after school.

Pensacola Beach Mardi Gras '09

Barrier Island Girl is your go-to place for pictures of the "Krewe of Kids" parade on Pensacola Beach. And, she promises more pics of yesterday's "Krewe of Wrecks" parade after she recovers from wind burn and frostbite.

For an explanation of why so many year-round beach residents scamper off the island to avoid the revelry, go to the Pensacola Monday Newsletter, or visit the local hoosegow.

Hell is Freezing Over

Today, Fred Hiatt's right-wing editorial page in the Washington Post comes out four-square in favor of nationalizing troubled banks.

The Perdido Key Disaster

For the second time in two days, we read that gambling venues are multiplying in Pensacola.

First, Escambia County commissioners approved setting up poker rooms at the dog track. It's just to keep the jobs, don'cha know.

Now, a Texas developer has announced he's partnered with the "Perdido Bay Tribe of Lower Muscogee Creek Indians" to build "a first-class bingo facility and resort" exceeding anything from here to Biloxi.

"Perdido Key Tribe of Lower Muscogee Indians?" Who knew?

If they haven't already, you can be sure enterprising local developers will soon stumble across descendants of a hitherto unknown knot of Native Americans, probably to be called something like the "Sabine Bay Band of West Santa Rosa Island Apalachicola" Indians. Frightened away by Tristan de Luna's expedition, it may be explained, they fled their native homeland, which we now call Pensacola Beach, before a lawful treaty could be negotiated.

"Compensation must be paid!" will be the scream. "How about a casino boat off Quietwater Pier?" will be the settlement proposal.

We don't want to be a Cassandra, but though our Indian story is fanciful it sure looks inevitable that Pensacola Beach residents will soon, again, be facing a referendum on legalizing casino gambling in Escambia County. Over the past decade we've seen at least two of those on ballots that we can remember, and the state narrowly missed a third.

Expect a new, well-financed campaign to authorize casino gambling in barrier island communities like Pensacola Beach. Greed will be the driving force, of course. It always is. But fear of another Great Depression will be the public argument pushed by gambling proponents.

Such is the history of gambling in America. As a California revenue department study observed a few years ago:

The great depression led to a much greater legalization of gambling. The antigambling mood changed as tremendous financial distress gripped the country, especially after the stock market crash of 1929. Legalized gambling was looked upon as a way to stimulate the economy.

Indeed, Las Vegas practically owes its existence to the Great Depression. As Thomas Barker and Marjie Britz wrote in their book Jokers Wild: Legalized Gambling in the Twenty-first Century
(Praeger 2000) --

In 1931 the Nevada legislature, reacting to the effects of the Great Depression and the decline in the price of silver, passed two revenue-generating devices.*** Gambling proponents argued that the taxes would bring in sorely needed revenue and reduce property taxes. *** The "Wide Open Gambling Law" started the modern era of legalized gambling in the United States.

Personally, our objections to gambling on Pensacola Beach have nothing to do with religion or morality. It wouldn't matter if they did. Along with the excesses of Wall Street and consumerism run wild, the past twenty years have seen such a proliferation of government sponsored lotteries and other forms of legalized gambling -- from bingo halls and race tracks to on-line gambling and casinos -- that most folk don't have far to walk to find some place to throw away their money.

Our objections are rooted mostly in concerns about maintaining the environmental sustainability of our fragile island paradise, the heightened risk of public official corruption that inevitably follows legalized gambling, the certainty that desperate poor people will become even more vulnerable to exploitation, and the increased vulgarization of American culture.

Widespread gambling inevitably cheapens an entire community. If you doubt it, visit Atlantic City. Or, Perdido Key in a couple of years.

As for Pensacola Beach, open gambling and the tourist theme of a "family friendly beach" are wholly incompatible. But that won't stop certain interests from arguing otherwise as the local economy deteriorates and more shops, restaurants, and businesses close.

Beach residents need to begin organizing, now, to have any hope of avoiding the same kind of disaster that is about to befall Perdido Key.

Suffer the Little Children ...

Speaking of thieves, as we just were, here's a glimpse of how the next generation of Wall Street financiers is being raised in Florida by billionaire fraudster Robert Allen Stanford:

Stanford’s girlfriend and his children moved out of the castle in June 2004 and into a 12,000-square foot home that they rented for $25,000 a month, according to a March 2008 filing in the paternity case.

After the pair broke up, Stanford paid $850,000 a year in housing, food and private-school costs to ensure his children maintained their “privileged and luxurious lifestyle,” his girlfriend’s lawyers said in the March 2008 filing.

The amenities included a new Lincoln Navigator and driver available 24 hours a day, seven days a week to chauffeur the children, according to an October 2007 filing.

“All the children need to do is pick up the phone and say, please pick me up from school, please take me to gym, please take me to tennis, and there is a bonded, insured driver” to do so, according to the filing.

Stanford also picked up the $50,000-per-year tab for the Gulliver Academy, a private school, and gave $6,000 worth of Christmas gifts to teachers, lawyers said in the filing.

He also provided as much as $75,000 for Christmas gifts and vacations for the children, and set aside $1 million for each in a trust account, the filings show.
* * *
“The children have always enjoyed first-class vacations and traditionally fly on Global Express, one of the Respondent’s private jets,” the girlfriend’s lawyers said in one of the March 2008 filings.

What damage to the lives of your children and grandchildren do you suppose will be done some day by the grotesquely spoiled offspring of the Allen Stanfords, Bernie Madoffs, and Art Nadels of our time?

edited 2-21
1:00 pm

Brighter Side of Economic Doom

Tony Pugh of McClatchey News Service filed this report early yesterday about the quickly escalating crime rates that always accompany hard times. Ironically, as bad times drive crime rates up, local governments are pressured to cut back on police protection, street lighting, etc.

The fewer cops on the beat and the darker your neighborhood, the more you are likely to be burgled. It's a vicious cycle.

Not to be missed, however, is the brighter side of economic doom. The more people lose their jobs, the more they tend to hole up at home. This leads California sociology professor Lawrence E. Cohen to observe:

"The more that people stay in their homes, the less likely they are to experience break-ins, since most thieves prefer to attack unoccupied dwellings."

Most thieves "prefer" unoccupied homes? That must be what passes for good news, these days.

Nationalization Jibber-Jabber

"Citigroup (C) and Bank of America (BAC) won’t live to see May. The government will take them over within the next 60 days. The announcement may come as soon as tomorrow evening."

-- The Motley Fool, Friday, Feb 20

There's been a lot of uninformed, hysterical jibber-jabber on the Tee-Vee and the Internet Pipes about the evils of nationalizing some banks over the last week or two.

It reached a fever pitch today, mostly generated by stock hypsters like Rick Santelli at CNBC. Santelli is not a real economist, by the way. He just plays one on the Tee-Vee.

Paul Krugman, the Nobel Prize winning economist, states the becalming facts in a nutshell:

We are not talking about fears that leftist radicals will expropriate perfectly good private companies. At least since last fall the major banks — certainly Citi and B of A — have only been able to stay in business because their counterparties believe that there’s an implicit federal guarantee on their obligations. The banks are already, in a fundamental sense, wards of the state.

And the market caps of these banks did not reflect investors’ assessment of the difference in value between their assets and their liabilities. Instead, it largely — and probably totally — reflected the “Geithner put”, the hope that the feds would bail them out in a way that handed a significant windfall gain to stockholders.

What’s happening now is a growing sense that the federal government, in return for rescuing these institutions, will demand the same thing a private-sector white knight would have demanded — namely, ownership.

What's more, as Krugman and Nouriel Roubini and James J. Galbraith and just about every other economist, left and right, has said repeatedly, federal "ownership" would be temporary. It would work exactly like an insolvency proceeding, as Atrios (economist Duncan Black) explains. Indeed, it already does. It's been happening to smaller banks, now, and even large ones like Washington Mutual nearly every Friday.

To be sure, when a bank becomes insolvent and is "nationalized" by the FDIC or some other government insurer or court, common shareholders suffer severe dilution in their investment, at best; more frequently, as in any other insolvency proceeding common shareholders are wiped out altogether.

But preferred shares may retain some fractional value, depending on the severity of the insolvency. And, of course, the creditors are by law given priority to recoup as much of the debt possible; most especially, government creditors like the FDIC that guarantee customer deposits.

Creditors usually are only ones who stand a chance of getting something back on the dollar. Just as in corporate bankruptcy proceedings, they are handed the power to take over management and wind up company affairs by paying off customers of the bank and creditors.

As economists Mathew Richardson and Nuriel Roubini explained two days ago in the Wall Street Journal, there is no other rational option when the banks are essentially broke:

Once we face this truth, there really isn't much left to do but nationalize.

We are not talking about the government operating the banks for the long-term. But, as was done in Scandinavia in the early 1990s, we are talking about orderly clean up, then reselling the banks to private investors.

"Clean up" and "receivership" sound so much better, don't they? More orderly, more lawful. So if you're a free market purist, you don't have to use the 'N' word. Use the "R" word for "receivership." It will make you feel better.

Unless, that is, you happen to hold common stock in Citigroup or Bank of America.

Mardi Gras Parade

The PNJ's Weekender insert has a complete rundown on all the fun. The Krewe of Wrecks' Mardi Gras Parade on Pensacola Beach is scheduled for 2 pm Sunday, although the last time we looked their web site was cluttered with 411's and didn't have any additional information.

Banks Pour Salt Over the Wounded

Christopher Leonard, AP reporter:

For hundreds of thousands of workers losing their jobs during the recession, there's a new twist to their financial pain: Even as they're collecting unemployment benefits, they're paying bank fees just to get access to their money.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards.
* * *
"It's a racket. It's a scam," said Rachel Davis, a 38-year-old dental technician from St. Louis who was laid off in October. Davis was given a MasterCard issued through Central Bank of Jefferson City and recently paid $6 to make two $40 withdrawals.
* * *
The fees are raising questions from lawmakers who just recently voted to infuse banks with taxpayer money to keep them afloat.
* * *
Another 10 states — including the unemployment hot spots of California, Florida and South Carolina — are considering such programs or have signed contracts. The remainder still use traditional checks or direct deposit.

Can't really blame the bankers. They just can't help it. They think they own everyone's money, anyway.

Poker Goes to the Dogs

Prof. Duncan Black, who blogs under the non de plume "Atrios" at the always-entertaining and often snarky Eschaton, is fond of referring to the stock market as a "dog track."

Here in Pensacola we have an old, authentic dog track. Now, all of you investors can gamble at poker there, too, while you lose money on the dogs as well as the stock market:

The Escambia County Commission voted 3-2 to allow poker at Pensacola Greyhound Track, reversing a December vote.

Of course, this is not about making money off desperate people who can't afford it. "First and foremost," the head of the track prevaricates for the News Journal, "this was about saving jobs and creating them."

Mark O'Brien seems to buy that. Speaking of suckers, we have a sleepy three-legged dog for him to bet on while he tries to fill that inside straight.

The Royals in Pensacola

Spanish television coverage of King Carlos' visit to Pensacola:

If you'd like to hear and see King Carlos' 10 minute speech, click here.

Sounds of Economic Silence

The estimable Lisa Newall of the Gulf Breeze News reports, "Heard a report from Sandy Johnson that inquiries about Pensacola Beach dropped from over 1,000 in January of 2008 to less than 500 for the same time period in 2009."

Is it the tanking economy? Or has it been too cold all over the nation this winter to think about swimming half-naked?

Royal Procession on Via De Luna

The News Journal is doing up big the brief procession of King Carlos and Queen Sophia as they motor down Via DeLuna on Pensacola Beach, some 449 years and six months after Tristan DeLuna's ill-fated landing on the shores of Pensacola Bay.

Good pics of the Pensacola Beach Elementary School kids. Not so much of the cabined royal couple. Click here for the slide show.

King Carlos I of Spain - Live

UPDATED
(Feb. 20 - the day after)

The King and Queen have come and gone. In place of the live feed, below you can view an archived video of the one formal public appearance and remarks of King Carlos I, from the balcony of the T.T. Wentworth Historical Museum, courtesy of the Pensacola News Journal:

11:21 am: King Carlos of Spain, on a "whirlwind" 17-hour tour of Pensacola, will be addressing locals from the balcony of the former Pensacola City Hall -- now the state T.T. Wentworth Museum-- in downtown Pensacola at noon. Stay tuned to watch the festivities live.

Undisclosed Locations

So much for the "undisclosed location" to which King Carlos and Queen Sofia of Spain were whisked after landing in last night's rain storm. By noon yesterday only 4,200 residents of Pensacola Beach knew the royal couple was to be housed for what remained of the night at the Pensacola Beach Hilton. Today's News Journal was the last to spill the beans.

The visit has been correctly termed a "whirlwind" lasting only 17 hours. King Carlos is no fool. He knows what happened to the first Spanish big shot to stay around too long.

Speaking of undisclosed locations, where's Reginald Dogan? Holed up with all of his homeys like Queen Latifah and Lebron James?

We hope he's found the time to read how King Carlos out-maneuvered the fascist murderer, Franco, and restored parliamentary democracy to Spain. Or, how the King put down a pro-fascist attempted coup [pdf] in 1981.

If he's really pressed for time, Reginald might try reading his own employer's editorial page, where Georgia M. Smith's Viewpoint article yesterday pointed out, correctly:

Spain was the most liberal of all the European colonizers. It was in this Spanish-ruled city that many free blacks lived during the antebellum days. The antebellum Spanish years in Pensacola can be called the Ebony Golden Age.

Indeed, Ms. Smith is, if anything, too cautious. The admirably multicultural Spanish influence in Pensacola lasted well beyond the Civil War and Reconstruction. So deeply rooted was racial equality in Pensacola that it took as late as 1885, well into the dark days of the post-Reconstruction era, before a newly installed state legislature and racist governor, Edmund Perry, felt politically strong enough to suspend the entire Pensacola city council so as to replace it with hand-picked Ku Klux Klan members. See, Cantor Brown, Florida's Black Public Officials, 1867-1924 (University of Alabama Press 1998).

King "John Charles Alphonse Victor Mary of Bourbon and Bourbon-Two Sicilies" may have a snooty name and be a descendant of the Bourbons, but he's no ordinary royal rightist. He'd probably even get a kick out meeting Dogan the Homey -- if only the columnist could be lured out of his own undisclosed location.

Bush's Legacy

Alan Greenspan, "who for decades was regarded as the high priest of laisser-faire capitalism," has told London's version of the Wall Street Journal that "nationalisation [of the banks] could be the least bad option left for policymakers."

Will this be seen by historians as George W. Bush's legacy? He left us in such bad shape we had no choice but to become a socialist republic.

The Rain for Spain...

... continues in the main
To fall on Spaniards with their lanyards
when they enter Pensacola Bay:

Dogan the Homey

Self-described "homey" Reginald Dogan "don't play dat," he writes in an embarrassing column in today's Pensacola fish wrapper. That is to say, he will not 'bow or kneel' should he find himself later this week in the presence of the King and Queen of Spain.

Then he adds:

If the king and queen really want to impress me, let's hear her rap like Queen Latifah and watch him slam dunk like King (Lebron) James.

Can't help wondering: would Reggie be more likely to bow, scrape, and grovel if he suddenly found himself in the presence of, say, Craig A. Dubow? And would his English be better?

Pensacola Banking Losses

It was only two months ago we found ourselves in casual conversation with a mid-level bank employee who assured us, "You can have confidence in Bank of America. We are the strongest bank in the country."

One month ago, that same employee lost her job. We called the other day to offer our commiserations. She said all she had left were her paltry shares in BAC.

Carleton Proctor of the Pensacola News Journal yesterday resurrected the local history of bank stock ownership and the picture isn't pretty:

Declining bank stock values erode the foundations of a community's wealth, and that is being felt acutely here in Pensacola. The stocks of Bank of America and Regions Bank are both widely held among Pensacolians due to acquisitions of large local financial institutions by those companies many years ago.

First Mutual was the largest financial institution in Pensacola for years before it was acquired by AmSouth back in the mid 1980s. AmSouth later merged with Regions. The "old" C&P Bank was acquired by Barnett Bank in 1993 and Barnett later was acquired by NationsBank which was then acquired by Bank of America.

One local banker told me many people who originally held C&P stock rode the wave through the series of mergers and never sold. Many regret that decision now that the values of those stocks has declined precipitously, and their dividends are reduced to almost nothing.

It can only get worse for local shareholders who, like the ex-employee we spoke with, "never sold."

Nouriel Roubini has been hinting for some time that once we summon the political will we will have to nationalize the "behemoth banks" if we're ever going to clean up the finance mess Wall Street created. Yesterday in the Washington Post he made it explicit:

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end

Nobel Prize winning economist Paul Krugman is of much the same opinion. As is his fellow Nobel Prize winner, economist Joseph Stiglitz.

Joe Nocera identifies several other banking analysts who agree. You know that nationalization of banks is inevitable when even ubber-conservative U.S. Senator Lindsey Graham says its time has come.

So, when a mega-bank like Bank of America is nationalized, what happens to local stockholders? Their holdings will get further diluted, if not wiped out altogether.

Already, B of A stock has fallen nearly 85% from its high of the last six months. Unless they dump what's left, it seems most likely that local investors who have ridden this falling meteor all the way down from the Barnett Bank days are about to smash into the ground.

New Deal Memories: Pensacola High School

More than ever, as we have said, we think it would be a service for someone to track down surviving area residents, workers, and visitors and add their memories of the New Deal years in Pensacola to existing archives, contemporary reports, collected letters, exhibits, and now web sites.

Plenty has been written or recorded, of course. But still out there are many who remember, as children, how it was. Human nature being what it is, their memories probably have softened over the years. Looking back on hard times, one tends to fondly remember the good times more than the bad, especially if you were young at the time.

Exhibit A: Someone by the name of Del Jupiter, in a letter to the editor of the Atlanta Constitution, reminisces about Franklin Roosevelt's visit to Pensacola and the old and new segregated high school building:

I agree with Jonathan Zimmerman that “Schools desperately need traditional federal aid” (issue Feb. 11). I remember so well the dilapidated high school in Pensacola, Fla., which blacks attended with its pot-bellied stoves, no science labs, no library, no cafeteria, and worst of all, the smelly bathrooms outdoors. We benefited from PWA and WPA funding which resulted in a gleaming, new school building.

My diary entry attests to the fact that on Aug. 9, 1938, President Franklin D. Roosevelt visited our city. The next day our family went to see the new high school. I am sure the building of that new school provided jobs for the community as well as educational opportunity for the students. So why can’t the Republican opposition restore federal funds for school construction to the bailout money?

DEL JUPITER

As for who should do it, we nominate Charley Reese and J. Earle Bowden, both of whom grew up in Pensacola exactly at the time we have in mind.

GOP Caucus - Live!

John Boehner, Lindsey Graham & cohorts caucus on Saturday Night Live:

Not To Be An Ant

We love Hilary Bok. And we're glad she's not an ant, too.

Obama's Due

Our own anxiety over rumors of a future "grand bargain" compromise aside, there is much to what Steve Benin says:

Looking back over the last couple of weeks, I've complained a bit about aspects of the economic stimulus bill and the process in which it worked its way through Congress. It's not ambitious enough. There are too many tax cuts. President Obama overemphasized bipartisanship. The White House lost control of the message. House Democrats made too many concessions. Senate Democrats made far too many concessions.

You get the idea.

But the Washington Post has a good piece [Saturday] that adds some perspective to what's transpired in recent weeks. It's a reminder that while the trees have been frustrating at times, the forest looks pretty impressive.
* * *
For historical parallels, the Post piece noted that we haven't seen a legislative win for a president on this magnitude since FDR's banking system overhaul in 1933, "which cleared Congress within days of his inauguration."

We heard a lot of talk after the election from the president and his team about hitting the ground running. I guess they meant it.

Give him his due. Obama has achieved a remarkable legislative victory. And, he did it with all 183 House Republicans spitting on his out stretched hand. Borrowing from FDR, Barack Obama can say just three weeks into his administration that "the forces of selfishness and of lust for power met their match."

Support Our Thieves

We are shocked... shocked!... that "senior American military officers" have fallen under suspicion in the investigation of what happened to hundreds of millions of disappeared dollars for Iraq reconstruction.

Stimulating a Bank Brain Drain

According to the New York Times, U.S. Senator Chris Dodd (D-CT) embedded a provision in the Economic Stimulus bill, which passed both houses of Congress last night, that "would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department."

The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay. Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.
* * *
“The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence,” Mr. Dodd said Friday. “These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”
* * *
In addition, the Congressional rules would affect not just a bank’s top management, but also star traders, investment bankers, fund managers and commission-based sales representatives. They have traditionally received multimillion-dollar payouts based on their year-end results.

Good for Dodd.

But the restrictions were opposed by the Obama White House. Why? The Times claims:

Top economic advisers to President Obama adamantly opposed the pay restrictions, according to Congressional officials, warning lawmakers behind closed doors that they went too far and would cause a brain drain in the financial industry during an acute crisis. Another worry is the tougher restrictions may encourage executives to more quickly pay back the government’s investments.

Or, as more succinctly stated by an "independent compensation consultant"who talked to the Times, the pay restrictions "won't work." He claims:

"Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”

There may be a potential legal problem with the Dodd salary restriction; most notably, if true, that it applies retroactively to executives who took TARP money from the Bush administration when the governing rule was "anything goes" for Wall Street miscreants and nincompoops. Whether that part survives court review heavily depends on the exact wording of the retroactivity provision.

But the suggestion that pay restrictions are bad because CEOs will pay back taxpayer money early is hardly persuasive. If anything, that's devoutly to be desired. The earlier Wall Street bankers get off the TARP money train, the better. Out here in the rest of America, normal people would see the prospect of lifting the bonus restriction as an incentive to speed the clean-up of balance sheets.

As for 'getting another job' -- who in his right mind could complain about that? Any Wall Street exec or trader who quits because he can't soak the taxpayers for a bonus "exceeding one-third" of annual pay should go into another line of work -- one more suitable to their character, like robbing banks.

Riverside Bank of Gulf Coast (R.I.P.)

On Friday the 13th, the FDIC closed Riverside Bank of the Gulf Coast, with headquarters in Cape Coral, Florida.

Memories (from Suite Life Magazine):

Besides being addressed by name, Riverside customers enjoy benefits that no other banks offer. For example, on Mondays, Riverside regulars know they’ll find freshly-baked cookies waiting for them. On Fridays, the aroma of hot popcorn wafts from a cart in the lobby and visitors are encouraged to scoop up a bagful.

No More Footsie for Obama

UPDATED BELOW

Via Digby, a "must read" article byWilliam Greider on the disaster that awaits Obama if he caves into "the grand bargain" devoutly desired by Wall Street and the (mostly Republican) elites. At risk are Social Security, Medicare, and children's health programs.

Obama is also playing footsie with the conservative advocates of "entitlement reform" (their euphemism for cutting benefits). The president wants the corporate establishment's support on many other important matters, and he recently promised to hold a "fiscal responsibility summit" to examine the long-term costs of entitlements. That forum could set the trap for a "bipartisan compromise" that may become difficult for Obama to resist, given the burgeoning deficit.

As Greider says, "When official America talks of 'bipartisan compromise,' it usually means the people are about to get screwed."

If, as some have heard, the Obama administration believes progressive America will give Obama a "pass" on the issue, it is very much mistaken. Striving for bipartisanship is one thing; but as Digby says, "You can't bargain with political sociopaths."

UPDATE
2-13 pm

Coincidentally, Dean Baker at TMP reports rumors are circulating among 'insiders' "that President Obama intends to appoint a task force the week after next which will be charged with 'reforming' Social Security."

According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economist in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program. The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

There are more reasons Dean elucidates to explain why this would be a bonehead move. To them, we would add one more: Obama, just weeks into his presidency, already is on the cusp of alienating a large segment of his core constituency with all of his ineffectual efforts to curry favor with the Right Wing. Needlessly targeting Social Security for "reform" by the same crowd that peacefully slept while the current economic storm was brewing would tear it for many.

The Republicans again today with a unanimous GOP House vote against the stimulus bill showed that they are content to put party politics ahead of everything, including national interest. They are lost to Obama no matter how much he may wish otherwise. If, nevertheless, he bulls ahead with a Bush-Lite call for Social Security reform, he will alienate the Democrats, as well.

How much "Change" can we "Hope" for if the president's persistently unsuccessful efforts to woo Republicans and Blue Dogs Democrats winds up isolating him from both Right and Left? That just might be the only 'bipartisanship' he's likely to achieve if the rumors Dean Baker is hearing are true.

Royal Ephemera

A beach reader emails us today to call attention to this sentence in the current issue of the Gulf Breeze News:

His Majesty King Juan Carlos I and Queen Sofía of Spain will visit Pensacola, Feb. 18 and 19 during the city's 450th anniversary celebration. Pensacola, founded by Spain in 1559, is one of the first European settlements in the United States.

"What do they mean 'one of the earliest' European settlements...?" our reader demands, rather irritably.

Her dyspepsia, we suppose, is rooted in fealty to the local gospel of Chamber of Commerce types that de Luna's 1559 adventure along the shores of what is now Pensacola led to the "first" European settlement in the United States, not merely "one" of them. St. Augustine may be the "first continuously occupied settlement," goes the local catechism, but Pensacola was the "first".... well, the first what?

Today's News Journal, in a sidebar, summarizes some of the facts:

In August 1559, an expedition led by Tristan de Luna y Arellano arrived in Pensacola Bay to establish Santa Maria de Ochuse, a settlement that predated the founding of Jamestown by a half century and St. Augustine by a half dozen years. Departing Veracruz on June 11, 1559, Luna was at the head of one of the most formidable settlement expeditions in American History: an eleven-ship fleet carrying in excess of 1,500 persons, more than double the number on any previous Spanish expedition to Florida. Though the settlement failed in 1561, it was the longest-lasting colonial settlement up to that date in what is today the United States.

History is far messier than we may suppose and, as usual, the devil is in the details. The one big detail the PNJ leaves out (perhaps reluctant to remind tourists and would-be residents of our own more recent tropical experiences) is that a hurricane soon killed many in the expedition and destroyed all but two of De Luna's ships.

As described in Steve Pinson's essay for the Pensacola Archeology Lab --

Before Luna had unloaded his vessels, they were struck, during the night of September 19th by a terrible hurricane, which lasted twenty-four hours, destroying five ships, a galleon and a bark, and carrying one caravel and its cargo into a grove some distance on land. Many of the people perished, and most of the stores intended for the maintenance of the colony were ruined or lost.

De Luna nevertheless proceeded to stumble blindly around what is now the Florida panhandle and lower Alabama for two years, robbing and murdering natives for their food even as his ample contingent of priests tried to "Christianize" them. Would-be colonists who had survived the storm starved and his subordinates rebelled. Upon his eventual return to Spain following an ignominious rescue, De Luna was shunned and he died despised and reviled by all who knew him best, including his wife.

In the end, so marginal was De Luna's contribution to the settlement of the New World that a number of reputable chronologies do not even mention his expedition -- see, for example, here and here.

More complete historical accounts can be found in a few books such as Herbert Ingram Priestley's Tristán de Luna, Conquistador of the Old South: A Study of Spanish Imperial Strategy (1936) and David Weber's The Spanish Frontier in North America (1992). Even Weber's rather careless and often inaccurate History of Florida (1871) paints only a slightly more favorable opinion of De Luna, but not by much.

In the details of his life and adventures, as we have said before, Tristan De Luna emerges as an earlier-day version of George W. Bush: stupid, vain, incompetent, luckless, and insane. You might think this would give pause to anyone who is thinking of naming a street or a condo after him. No such luck. These days, Pensacola celebrates his dubious qualities everywhere.

To return to the point of our reader's question, if you're looking to resolve the question of what, if any, "first" the de Luna expedition achieved, Wikipedia probably offers the best solution. The on-line encyclopedia says that in 1559, 450 years ago, he established the first "ephemeral colony" inside what is now the continental United States.

"Ephemeral colony." We like that. It's a felicitous phrase, intriguing -- even mysterious -- in its vagueness yet accurate enough when all the details are known.

The Drowning Season Begins

Three children at Pensacola Beach nearly were swept out to sea this afternoon, the Pensacola News Journal is reporting on-line. Two adults apparently rescued them near Avenida 18, east of Casino Beach.

This time, "All five were able to make it back to shore." Next time, when someone ignores a yellow warning flag.... ?

Thought Experiment

So, it seems confessed fraud tycoon Bernie Madoff's wife withdrew $15.5 million from the family accounts essentially at the same time her huckster husband was confessing to the family that he had bilked investors out of $50 billion.

Yesterday, too, New York's attorney general disclosed that Merrill Lynch executives "chose to make millionaires out of a select group of 700 employees" with huge bonuses just days before the insolvent investment bank was absorbed by Bank of America, all thanks to bailout money handed over by the Bush administration with no strings attached.

Try this thought experiment: Pretend you owe more than you are worth. Pretend that you know you are going to file for bankruptcy next Monday. Pretend no one else knows this, and you aren't talking.

You nevertheless decide to max out your credit cards for cash and borrow as much from your next door neighbors and relatives as they will lend you. Then you give all the cash to your kids.

What do you think? Have you committed a fraudlent transfer? Or a "white collar crime?" Regardless, would you do such a thing to your neighbors? Your relatives? Should you expect to go to jail for such misconduct?

Or, is this merely an acceptable, clever business plan available only to Wall Street bankers and tycoons?

Bernie Sanders Rocks

Bernie Sanders, a truly independent senator not beholden to either political party or the banking industry:

Celebrating Darwin and Lincoln

February 12, 1809 was a remarkable day in the progress of humanity.

Charles Darwin (Feb. 12, 1809-April 19, 1882) He sought to free us from the tyranny of ignorance about the world around us, and changed everyone's view of nature.

Abraham Lincoln (Feb. 12, 1809-April 15, 1865). He sought to free us from the tyranny of our own malice toward others, and changed everyone's view of freedom.

President's Day at Live Oaks

The U.S. Park Service's Gulf Island National Seashore will sponsor a Presidents Day program Saturday, February 14, at the Naval Live Oaks building in Gulf Breeze. Featured is a 45-minute film titled "A Presidential Perspective of the National Seashore" showing at 10 a.m. and 2 p.m. Admission is free. For more information, call 934-2600.

Winter Cubs Meeting

Long suffering Chicago Cubs fans are everywhere, including Pensacola Beach. Why not? They've had, now, over a century to spread across the land since they last won a World Series.

Two of the Cubs' despairing diaspora have settled in the promised land of Pensacola Beach. They sent us a link to the latest Midwinter Meeting of the Chicago Cubs' team management, produced by Brad Kermit at the incomparably nutty blog known as "Hire Jim Essian."

The beachy Cubs fans know who they are. We thank them.

Roubini Misunderstood

Nouriel Roubini is the New York economist and professor who is one of a very few to predict the timing and dimensions of the present economic recession. So, it makes sense to pay attention to what he thinks about Treasury Secretary Tim Geithner's 'Bank Bailout 2.0' plan, which was announced yesterday.

The title of Roubini's article in today's RGE monitor ["It's Time to Nationalize Insolvent Banking System", free subscription to read the whole thing] more or less correctly states what Roubini thinks should be done if we were living in a perfect world. But the title distorts what he thinks actually can be done given "the political constraints facing the new administration."

Nevertheless, it's the title of the piece that's getting all the media attention, especially with the implication that "it's time" -- now -- to nationalize troubled banks. That's not quite what Roubini is saying.

He first identifies and rejects three other broad options as too ineffective, expensive, and unworkable: (1) recapitalization of the banks by taxpayers to save stockholders; (2) setting up a "bad bank" to buy bad assets to save creditors; and (3) helping a very nervous private sector buy bad bank assets themselves. The fourth option is putting the banks into receivership -- effectively, nationalizing them -- cleaning up their balance sheets, and then letting them re-emerge as smaller privately-held banks.

This “nationalization” approach was the one successfully taken by Sweden while the current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze. Japan ended up having a decade long near-depression because of its failure to clean up the banks and the bad debts. The US, the UK and other economies risk a similar near depression and stag-deflation (multi-year recession and price deflation) if they fail to appropriately tackle this most severe banking crisis.

Roubini's analysis then gets more subtle:

So why is the US government temporizing and avoiding doing the right thing, i.e. take over the insolvent banks? There are two reasons.

First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time.
Second, taking over the banks – call is nationalization or, in a more politically correct way, “receivership” – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken.

Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent (as suggested by Chris Whalen, one of the leading independent analysts of the banking system).

Thus, if the government were to take over only Citi and Bank of America today (and wipe out common and preferred shareholders and also force unsecured creditors to take a haircut) a panic may ensue for other banks and the Lehman fallout that resulted from having unsecured creditors taking losses on their bonds will be repeated again.

Instead if, as likely, the current fudging strategy - of temporizing and hoping that things will improve for the economy and the banks - does not work and in 6-12 months most banks (the major four and the a good part of the remaining regional banks) all look like clearly insolvent you can then take them all over, wipe out common shareholders and preferred shareholders and even force unsecured creditors to accept losses ( in the form of a conversion of debt into equity and/or haircut on the face value of their bond claims) as the losses will be so large that not treating such unsecured creditors would be fiscally too expensive.

So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constraints facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

But with the government forcing Citi to shed some of its units/assets and the government starting stress tests to figure out which institutions are so massively undercapitalized that they need to be taken over by the FDIC the administration is putting in place the steps for the eventual and necessary takeover of the insolvent banks.

You can expect a similar path and an eventual government takeover of most financial institutions in other countries – such as the UK – where many banks are effectively insolvent.

In other words, since we don't live in a perfect world, but one also inhabited by "Free Market or Bust" Republicans, we are compelled, first, to try "Plan a" -- a more expensive method for rescuing the financial sector. Only when these prove ineffective, as they almost assuredly will do, will it become politically feasible to turn to the one remaining solution that has a proven track record at little of no cost to the taxpayers.

Roubini's "Plan B", then, is to nationaliz the largest "too-big-to-fail" banking behemoths -- not now, but after Plan A has failed. In the meantime, he sees little to do but wait for the inevitable second crash.