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Feb 18 / Jonathan

NPR Misrepresents Bank “Nationalization” Yet Again

Aren’t the Internets handy, though? I heard the NPR piece about half an hour ago and wondered if what he was saying (about bank nationalization) could possibly be true. Thus Dean Baker:

NPR Misrepresents Bank “Nationalization” Yet Again

NPR presented an expert asserting that the taxpayers would be liable for all bank debt when it takes over bankrupt banks. This is not true. The government has no legal liability for the bad debt of bankrupt banks. It has generally honored not only the deposits but also the bonds of banks that were taken over by the FDIC, but it has no obligation to do so. If the current crisis leaves such a large volume of bad bank debt, it would be under no legal obligation to repay all of this debt at 100 cents on the dollar (presumably it would make owners of subordinated debt take the first hit).

—Dean Baker

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