This profile of Larry Summers has brought about a rethinking of the bank nationalization* debate from last winter; Matt thinks the arguments presented by Summers against a more aggressive policy don't impress, and concludes that the problem was politics:If you’re going to do something that’ll get you tagged as having undertaken an unpopular “bank bailout” then you might as well do it in a way that makes the bankers happy. Nationalization sounds at first glance like a sunny populist solution, but it would have still been hugely expensive and still characterized by many as a “bailout” (and, indeed, the whole point is in fact to bail out the creditors of major financial institutions) and also gotten Obama tagged as a Communist.While politics had a lot to do with the decision, I don't think it was the case that the administration decided it might as well at least have the bankers happy -- and a good thing they did, because the bankers are not happy with the administration's financial-sector policies. The political problem was the expense of guaranteeing all bank debt, a key step in the Swedish approach to nationalizing banks -- a policy, incidentally, advocated by Tim Geithner at the start of the crisis. The amount of money required for this project would have dwarfed the current bailout programs.You can fault the administration for the lame last-resort argument, and not even trying to obtain the legal authority to take over big banks if that was a key obstacle -- although they are requesting that authority now and not getting much credit from most observers for preparing for the next crisis. But even beyond the legal questions, there is the question of the government's capacity to actually perform the necessary actions to take over the banks amid questions of conflict of interest and industrial policy. The U.S. system was a lot more complex and a lot less amenable to take-over than the Swedish one -- it's not a question of "culture," but of complexity -- and one that was never answered by nationalization proponents.
-- Tim FernholzSee also: Felix Salmon's take. *Really, a "receivership" or "conservatorship." One other problem with this debate is really don't have good vocabulary for talking about the problem.
