Until now, to deal with the recession, the Obama administration has obtained approval of a huge public spending increase and has reduced somewhat the amount of foreclosures. By contrast, the third leg of the government Economic Reactivation Plan is taking a bit longer, because it has to do with rescuing the banks, to reactivate credit and therefore demand.
The government presented to the banks, last week, the results of the stress tests administered to the 19 banks under scrutiny. The test results will be made public sometime next week.
Meanwhile, the Wall Street Journal revealed that, in addition to some regional banks dedicated to commercial real estate, at least three of the biggest banks, Wells Fargo, Citi and Bank of America, will require increased capital, to withstand worsening economic conditions. Together, these three banks have already received US $120 billion from the government and they will be given six months to raise additional capital.
For this purpose, these banks can sell assets or sell stock, or convert the funding they have received from the government into common shares, with a right to vote. In this last alternative, the government would become the biggest stockholder in these banks, which has led to complaints that this would be outright nationalization. However, as declared by New York University Professor Nouriel Roubini, well known for his pessimistic-but-accurate economic predictions, "if you do not like the dirty N-word, you can call it a temporary takeover."
Isaac Cohen is the former director of the Washington Office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). He is a commentator on economic and financial issues for CNN en Espanol TV and radio.
