That's Paul Krugman's view. In his column today, he writes that, "if this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place." I'm not sure about this on two levels. The first is the implication is that Congress would now be willing to offer the funds and legislative authority required for nationalization. I see little evidence for that view. The sums involved in nationalization will be eye popping. The howl from the markets, the bankers, and the GOP would deafen. It is, of course, true that the politics might be different if Obama had spent the last three months prepping the country. With Alan Greenspan and Doug Holtz-Eakin both supporting nationalization, you could certainly imagine a scenario in which the White House threw its considerable muscle behind the idea that this was now the consensus position. But either way, it's not an obvious political winner. Fast forward a year. The auctions don't worl because the banks can't sell the assets at a price that doesn't leave them insolvent. Geithner's plan fails, and he's eased out of the administration. He's the Rumsfeld of the financial crisis. Paul Volcker is installed as Treasury Secretary. Unemployment is in the double digits and the banks are in worse shape than ever. Incumbent Democrats can see the midterm elections in the distance and predict their fate if the economy doesn't improve. We are out of options save for nationalization. Krugman's contention would be that in this scenario the political system is more resistant to nationalization even as the intellectual case and the visceral need are both more compelling. I'm not sure that's right. As the old saying goes, you can always trust Americans to do what's right -- after they've exhausted the other options. That is not, mind you, an argument against nationalizing now. A year of economic misery is a year of terrible suffering. But Krugman is correct that the case for the Geithner plan is much weaker if it forestalls more severe action later. But I'm not sure it does.
