We have not gotten the normal rally in the stock market that usually accompanies the inauguration of a new President. Instead, we have gotten a stock market selloff. Why?

The reason for the selloff is that Wall Street is shaking in its boots. The Wall Street "banksters", as I like to call them, are afraid that President Obama may take a certain action they will not like.

What is that action? The complete nationalization of major US banks! If banks are nationalized, anyone who owns the common stocks of these banks will have their investment completely wiped out.

Right now, with steady addition of billions of dollars into our banking system by the US government, we already have a partial nationalization of banks.

Should President Obama take this drastic action? To be honest, I really haven't made up my mind about the nationalization of banks. Part of me is strongly against it, but part of me also sees the successful nationalization and subsequent re-privatizing of banks in Sweden during the 1990s.

The problem with a full nationalization of the US banking will be the cost. The banks are in such bad shape that the Financial Times has estimated the cost to US taxpayers will be at least $2 trillion.

I definitely do think that President Obama should use the threat of possible nationalization to try to whip the management of these banks into shape.

President Obama should tell the bankers that they will be nationalized and their cushy jobs will be lost unless:
1) they immediately quit hoarding the funds that the government gave them and begin making loans, as normal, to both businesses and consumers.
2) they immediately quit playing dangerous "games" with bank money in an attempt to enrich themselves.

What do I mean by "games"? There was a very interesting recent article in the Financial Times about Citibank and Bank of America. The article cited a recent estimate which looked at those two firms' total leverage ratios. Please remember that in the past a leverage ratio 10-to-1 was considered "prudent".

This is a bit technical - the total leverage ratio was calculated by looking at both firms' on-book and off-book assets and exposure and divided that figure by tangible equity.

The leverage ratios were an outlandish 88-to-1 for Citibank and 134-to-1 for Bank of America! Is it any wonder that these major banks are in such dire straits and needed hundreds of billions of dollars in government bailout money?

This is the banking model that these Wall Street "banksters" have adopted: If they are successful with their "bets", then a few dozen employees will receive large multi-million dollar bonuses; If the "bets" go south, as they have, then the "suckers" known as US taxpayers will be stuck paying off the losses from the bad "bets".

The current Wall Street "banksters" model is simple: privatization of the profits, but socialization of the losses. Here is my observation - at least casino operators are honest enough to put the word CASINO on the front door so that everyone knows they are entering a gambling establishment. I wish Wall Street were as honest.

Perhaps President Obama can leverage the threat of possible nationalization to get these "banksters" to change their behavior.

As always, please feel free to contact me with any comments or questions.