As nationalization fears helped sink the Dow to another six-year low yesterday, the Obama administration is considering a plan to rescue banks that would avoid the thorny issue of an outright government takeover, sources told The Post.
The strategy being bandied about would involve Treasury Secretary Tim Geithner’s financial dream team classifying the ailing banking sector into three categories: those that can survive the recession, those that can’t and those in between.
The banks seen as likely to fail would be put through a natural unwinding over time and would see their depositary bases seized by regulators and eventually sold off.
Banks that are borderline, meanwhile, could potentially get more capital injected into them, but efforts would be made to avoid a full-fledged nationalization.
In other words, according to one source, the government wouldn’t exert any more control over the bank than they have over hobbled financial institutions like Citigroup and Bank of America, which have gotten a combined $90 billion in rescue funds.
Talk of such a plan comes as the Dow Jones industrial average sank to a fresh six-year low yesterday amid persistent fears that Citi and Bank of America could be taken over by Uncle Sam soon.
The Dow sank 100.28 points to 7,365.67, the lowest closing since Oct. 9, 2002, when the Dow hit 7,286.27.
It was the second time this week that the Dow set a fresh bear-market low, and capped a week in which the Big Board lost 6.2 percent – its worst showing since last October, when it lost 18.2 percent.
The Standard & Poor’s 500 index fell 8.89, or 1.14 percent, to 770.05, while the tech-heavy Nasdaq fell 1.59, or 0.11 percent, to close at 1,441.23.
Citi shares tumbled 22 percent to $1.95, while BofA shed 3.6 percent to close at $3.79, on the nationalization fears.
To be sure, matters weren’t helped by comments from Sen. Chuck Schumer (D-NY), who yesterday said so-called “zombie” banks should be nationalized, or from Sen. Chris Dodd (D-Conn.), who said some banks might have to be taken over by the government at least temporarily.
However, White House Press Secretary Robert Gibbs tried to tamp down the government-takeover talk, but didn’t definitively eliminate such an option.
“This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” he said. “That’s been our belief for quite some time, and we continue to have that.”