Talks about bank nationalization in the middle of the foreclosure crisis sent stocks spinning down

At one point there were fears and hopes that the banks would be  nationalized but Timothy Geithner did not take that extreme step. He laid out a  grandiose plan but left many questions hanging. The thorniest subjects  continued to be skirted. The key to the issue was Obama government being able  to lure in massive private investment. But Geithner remained vague because  there was a marked coolness among the investors. This led to stocks falling by  5%.

The government now came forward with ‘stress tests’ for 19 of the  biggest banks in USA. The idea was to find out if they had sufficient capital  to fall back on if the economy worsened. The results as examined by the  regulators were not good.

While Wall Street concentrated on the banks Obama turned towards the  foreclosure crisis and set in motion a plan costing $275 billion. The measure  targeted 9 million homeowners having trouble with their mortgages. Incentives  were offered not only to lenders and servicers but also to borrowers. For each  loan modification and refinancing there were carrots and the borrowers too were  promised rewards for remaining current on the mortgages. Initially there were  kudos for the plan but critics warned this would not help a good number of  borrowers who were underwater – their loan amount being more than the worth of  the house.

Meanwhile there were strong feelings gathering momentum that in  attempting to mitigate the crisis the government was rewarding those who had  behaved badly. The bleak winter season was not being followed by a warm spring.  Very few were being helped by the plan. The economy shrunk at a worse rate than  apprehended previously. It declined by an annual rate of 6.2% during the last quarter  of 2008.

The government increased in stakes with Citigroup to 38% causing fears  about bank nationalization to resurge. Credit became hard to get again and  stocks fell to the lowest point in 12 years. The international situation was  not much better.

International conditions were not much improved with the countries in  Eastern Europe that had adopted American capitalism beginning to totter.  Western banks began to slide as trade levels fell. Chinese exports were  affected with drop in American consumer sales. Countries began to build trade  barriers.

But just as the ship was sinking suddenly there were good tidings. Hope  trickled in fed by positive economic reports from government and also private  research entities.