Monday, February 23, 2009

Temporary Bank Nationalization?

My good friend Matt from his Noise In My Head blog makes some great points about temporary bank nationalization.
Amazingly, even Alan Greenspan now supports this position, saying that “it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” Paul Krugman, the Nobel Prize-winning economist, says that it’s “amazing how compelling the logic of temporary nationalization is.”
By nature, I have little trust in anything our government officials say, namely politicians, when it comes to big things like bank nationalization, auto company nationalization, etc.

Certainly, the government has its role and there are things it and only it can do. But where they cross the line is perhaps where we have the biggest disagreements.

Government is "good" at military, law enforcement, infrastructure, the drug and food supply, even basic banking (few would argue against the FDIC).

They are "not good" at education, housing and urban development, healthcare.

With Citgroup talking with the White House about the federal government taking a 40 percent stake (10 percent short of nationalization), I wonder what this means in the long-term.

When does the government ever do something big like this and then back off later? Our government's history is that if something does not work, they will say "we did not invest enough." They will try and try again failed program after failed program, hoping to get them right eventually. Eventually never comes. Rarely will they admit it was a bad idea.

A temporary bank nationalization might be a good idea but the reality is that it appears nothing more than a cruel oxymoron.

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