I think Tyler Cowen gives my earlier post too much credit when he says I "consider[ed] the fate of the progressive agenda if a bank goes on the government's balance sheet and voters start to blame Obama for what they don't like about banks." But I've been meaning to write that post, too! The nationalization conversation has, probably rightly, proceeded from the premise of what policy is most likely to work. But in the White House, the principals are also presumably considering the costs of failure. And the failure of a policy of nationalization is a scarier prospect than the failure of a toxic assets strategy. The Obama administration would own nationalization -- and its attendant effects -- in a way that they're unlikely to own a less aggressive intervention. Encouraging private investors or buying toxic assets still feels like management of the Bush administration's crisis. Nationalization, conversely, is the Obama administration's choice, and a seemingly radical one (how different this might all be if it were called "receivership!"). If it fails, the failure will be chalked up to "nationalization," not, as it currently is, to the financial crisis. And beyond tarring Obama, it will also tar government action: Fairly or not, the verdict on nationalization will be a verdict on the capacity of government to respond to crisis. On the other hand, inaction isn't an option either. If the Obama administration can't fix the banks, it can't fix the economy, and if it can't fix the economy, it can't succeed. So it's a process of weighing the chances of success against the costs of failure. Skittishness is understandable. It's hard to think of anything more politically risky, both for the Obama administration and for progressivism, than nationalization.
