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Posted by on Feb 22, 2009 in Economy | 2 comments

Nationalize Banks? Of Course!

Some prominent Democrats and Republicans in Congress along with some leading economists say it’s time to nationalize American banks. Some other leading Democrats and Republicans in Congress along with some prominent economists say no. But the argument here is silly.

Bank nationalization is already well underway. Twenty-five banks were taken over by the government last year and more than a dozen so far this year. Their deposits were guaranteed and remaining assets sold off by federal officials. They were, in other words, nationalized. Much of the hundreds of billions used to prop other other banks has been given in return for partial bank ownership by the government. These baks were, in other words, partially nationalized.

The present debate about nationalization really only revolves about two troubled institutions—Bank of America and Citigroup. And the great fear here when it comes to a full takeover is that it will rile the markets.

And yes, there will be a day or two of very steep stock market drops if a full nationalization takes place. But so what? Stockholders in these companies have already lost nearly nine-tenths of their equity through pure market machinations. Another final ten percent loss is nothing compared to this. Further, bondholders and depositors in these institutions will be much more secure with a government than a private bank owner.

Sometimes you just gotta let it go. You have to do in one fell swoop what’s happening with the death of a thousand cuts. Do what has to be done, what will eventually be done one way or another. Do it quick and move on. Do it slow and the pain will just go on and on and…

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