Should the United States nationalize its banks to avert economic disaster?



The Washington Post's PostPartisan blog reports that President Obama doesn't want to go down that road, but stresses that the federal government will do whatever it has to do to get the nation's economy growing again.

"My absolute goal is to make sure that our financial system is set and that we get credit flowing again, that homeowners, small businesses and large businesses will get -- invest and create jobs and get this economy going again. I'm going to be very practical in terms of how to approach it. What we want to do is to make sure that we get this right on the front end. What Tim Geithner did was to provide a framework. He is presenting then a timeline of how this is going to roll out over the next several months: When do we start applying these stress tests to the banks; opening up their books; making sure that everybody knows for sure exactly what's going on in there; structuring plans to attract private capital to help deal with some of these weaker institutions. Some of the smaller institutions that don't pose systemic risks, if it turns out that they're in really, really bad shape, then we may have to reevaluate how we approach some of those institutions.[...]

"But here's the bottom line: We will do what works. It is going to take time to lay out every aspect of this plan and there are going to be certain aspects of any plan that was designed which will require reevaluation and then have some experimentation -- if that doesn't work then you do something else. What I'm confident about is that the basic framework that we have put forward is the right one, and that it balances a whole host of issues, including, by the way, the issue of making sure the taxpayers aren't just carrying the whole freight on this thing, and that we're sharing -- that institutions on Wall Street are sharing the burden of cleaning up this mess.

Interestingly, there are now some conservatives who are now advocating what would have seemed ridiculous as recently as a few month's ago: the nationalization of the nation's major banks.

he U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.

What's your opinion on the potential for the nationalization of American banks?