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Via Paul Krugman comes a bit of advice to policymakers from the chief economist of UBS:
But they need to ensure that their best plans are neither half-hearted, nor hostage to the opinions of those with vested interests, or with an enduring but dangerously naïve belief that government intervention is intrinsically bad. For, if truth be told, there will have to be more full-scale nationalisation of weak or basically insolvent banks anyway - in addition to those that work with government support - and the sooner we get there, the better, and the less costly it will be.That last point is rather important: If we need to nationalize banks, it's cheaper to do it swiftly and in a clean motion than to dither about with half-measures and failed interventions. It's like fixing anything else: patches are cheaper if you don't need a replacement. If you spend a lot of money on patches, however, and do need a replacement, the total is far more costly. The question that Obama's economists need to ask, then, is what the likelihood is that we will eventually nationalize these banks. If that probability is high, it's better to do it rapidly.
