Nationalization?

Those of you who know me well enough will understand my glee when I read this article from today’s New York Times: Rescue of Banks Hints at Nationalization

I have said all through this crisis that the cleanest and quickest way to bail out the banks is to inject capital. The plan would be for the government to take a shareholding position in return for the money it puts into the bank. Citibank is a prime example: their losses are now so large that the amount of capital required to bail them out is sufficient for the government to become the majority shareholder. So the question becomes should the government own stock in return for its cash, or should it take some other form of position, like a loan? I say stock.

Nationalization of banks has been done before. I have mentioned the Swedish example in the past. During the 1990’s Sweden went through a massive credit crisis. The Swedish government was forced to step in and bail out the local banks. So large had the crisis become that eventually the government ended up owning the banks, which it then ran for two or three years while the crisis ebbed. After the problems had all been dealt with the banks were then sold back into private hands. So the nationalization was a temporary solution and not a permanent intrusion by the government into the market place. And it worked like a charm.

This is the solution I have been advocating for America. Quick, easy, direct and painless. The issue here is that the word ‘nationalization’ is such an anathema. It conjures up all sorts of demonic images of European style capitalism that Republicans break out immediately into a frenzy of patriotic Euro bashing that muddies the waters.

My view is that the all American style capitalism of the Reagan era is dead anyway. It died in the aftermath of its two great bubbles: the dot com and real estate bubbles of the past two decades. The wealth created during those years was an illusion. The shining city on the hill was actually suspended in midair without a solid foundation. It’s time to admit as much and move on before we hurt ourselves any more.

In this regard nationalization emerges as a viable and temporary problem solving device. It works. Let’s do it and get on with rebuilding the economy rather than waste away a few more valuable months dithering over attempts to salvage Reaganomics from its proper resting place: the garbage dump.