The board of directors at Monte dei Paschi balked at the bank’s restructuring plan, leaving the bank with no clear path forward. Possibly the bank could be nationalized and sharply reduced in size, or it could be liquidated in a series of auctions. A majority of directors considered this uncertainty preferable to the endorsement of a plan that the bank did not seem to have any prospect of delivering.
The big question in the United States is whether the country will have a national government next week. The new fiscal year starts October 1, and the House of Representatives voted twice this week to shut the government down rather than fund it for the new fiscal year. Republicans have seized on the health care issue as the excuse for the extended government shutdown they have been planning for months. From what I have heard, a plurality of House Republicans would be more than happy to shut the government down through spring, or even for the entire fiscal year. Others, though, are having second thoughts.
If the government is shut down, this will not be an ordinary shutdown because the Treasury is limited by the debt ceiling, which it projects to hit in the middle of October. The White House would be legally required to start dismantling the federal government, basically following its own path in doing so.
In theory, the Fed and FDIC keep operating as usual in a government shutdown. The OCC, the primary regulator of national banks, shuts down, but so do the SEC, FHA, and others. A government shutdown of a month or two would probably result in the delay of some bank liquidations, but at some point that could turn into a flood of bank failures as banks’ customers run out of money. By December, we could be looking at mass layoffs at Fannie Mae and Freddie Mac as they scramble to stay out of bankruptcy with a suddenly illiquid real estate market and no line of credit at the Treasury.
If the government stays shut through the fiscal year, we would see an unprecedented economic split between states, with about half of states falling into depression, the other half finding ways to keep functioning in varying degrees. None of these scenarios seem likely until I listen to the plans of Republican political strategists. They don’t blink — indeed, they seem almost gleeful — when they suggest they can keep the government shut for six months or longer.