More Than One Way to Take Over a Bank

[RedEarth]

Few words conjure the specter of radicalism quite so well as nationalization. Seizing control of large industries — nationalizing them — is often among the first acts of a leftist government. Lenin did it, and so did Hugo Chávez. Even the comparatively tame François Mitterrand made the nationalization of some banks and heavy industry the centerpiece of his agenda when he became France’s president in 1981. He held it out as the alternative to the laissez-faire ideology of Ronald Reagan and Margaret Thatcher.

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There are really two different kinds of nationalization. The first draws on a belief that the government can run large enterprises more justly and efficiently than self-interested capitalists can. This is the nationalization of Lenin, Chávez and Mitterrand, and its record is pretty dismal. France’s economy staggered through the 1980s, as government-run banks backed political pet projects that didn’t work out.

The second version of nationalization is the one that today’s advocates point to. It is a temporary takeover born out of crisis. Sweden pursued this kind of strategy in the early 1990s to clean up its banking system. Even the United States has nationalized banks on occasion, including IndyMac Bank last year.

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Obama and his advisers offer several arguments against nationalization. This country has many more banks than Sweden and would have to find many more crisis managers to run them. Our political system is also messier, and the banks could be vulnerable to political meddling. But their best argument is that nationalization would probably cost a whole lot of money. Once a few banks were taken over, shareholders might abandon others, fearing that their stock would also soon be worthless. These banks would then need government support. If Geithner’s plan — to lend banks money, in effect, and let them solve their own problems — has a chance of working, it would probably be much cheaper.

The question, obviously, is whether it is too late for such moderation and, if not, whether Obama’s economic team will be able to see when it is. His top advisers, including Geithner and Lawrence Summers, have spent much of their careers trying to persuade other Democrats of the virtues of private enterprise. They have pushed the party to grasp the folly of Mitterrand and acknowledge the limits of government. As this crisis has made clear, the private sector has its limits, too. Will the people who have Obama’s ear be able to acknowledge those limits when the time comes?

http://www.nytimes.com/2009/03/01/magazine/01wwln-lede-t.html?_r=1

[JohnWxy]

1. and we are now in the ironic situation after Wall Street got what it wanted: total deregulation

now THE BANKS (for now, Citibank) are beginning to beg the Government to become part owners so they can get necessary capital!