Will Obama Nationalize the Nation's Major Banks?

A few articles on a radical economic idea that's rapidly gaining traction

Eye opening morning story story from The Australian (of all places), a Wall Street Journal affiliate. In the wake of last year's patently ineffective TARP bailout, and as economic policy makers contemplate blindly dumping more hundreds of billions of dollars into the nation's obviously insolvent banking institutions, the discussion is suddenly turning to what would have been considered "the unthinkable" just a few months ago -- the nationalization of America's largest banks. Here's the lead:

Despite tepid denials from the White House, there has been a steady drumbeat of signals over the past few days indicating the bank plan is under consideration, including comments from Federal Reserve chief Ben Bernanke, who acknowledged that government takeover was a possibility.
"Whatever actions need to be taken," Mr Bernanke told journalists when asked last week about nationalisation. "I think there's a very strong commitment on the part of the administration to try to keep banks private, or return them to private hands as quickly as possible."
While some top administration officials are said to be against any sort of nationalisation, Chris Dodd, head of the powerful banking committee of the US Senate, said on Friday he was "concerned we may end up having to do that, at least for a short time".
Unthinkable just months ago but becoming more likely as the US Government and Federal Reserve commit trillions of dollars to try to underwrite a financial system many say is bankrupt, a government takeover of the US banks would wipe out shareholder funds.
Bank shares started to plummet in the US on Friday (Saturday AEDT) and rebounded only after the White House was forced to reiterate its support for the private banking system.

Read the full article here:

• Plan to nationalise American banks

The story also mentions Noriel Roubini,who's been an accurate economic forecaster in the past, and who has been strongly pressing the case for "temporary" bank "nationalization" during recent days.

We link the full text of the most recent article Wall Street Journal article on Dr. Roubini's viewpoint here:

•'Nationalize' the Banks

And for those folks who still don't believe the idea of bank nationalization has gone mainstream, be sure to check out Nobel Prize winning economist Paul Krugman's op-ed piece in this morning's New York Times:

• Banking on the Brink

Now that big-shot economics heavyweights like Paul Krugman are weighing in on ideas like this, you have to believe the administration will be listening very closely. And here's an interesting side note. Krugman doesn't like the term "nationalization." He prefers to call it "pre-privatization."

"What's in a name? That which we call a rose By any other name would smell as sweet." - Romeo and Juliet (II, ii, 1-2) No?

So what say our gentle readers about all this? If this idea is implemented, and private institutions like Bank of America and Citigroup are taken into government receivership, rather than to be allowed to remain on the public dole, will it signal the final end of the American capitalist economic system as we know it? Or does the plan of Roubini, Krugman, et. al represent a more sensible and economical way to forcefully squeeze out the malinvestment within in our US financial sector? (Of course there's always the option to just stand back, and let these banks fail. Given the ideological makeup of the present congress, will predict that's a very low probability alternative.)

Having asked these questions, by the way, we do recognise one major obstacle to the implementation of a federal government bank nationalization plan: the Obama administration is presently stacked with trusted allies and stooges of the big banks, who'll no doubt argue for protecting the interests of their fat cat banker pals in the private sector:

• Trouble at Treasury - Geithner Gets the Keys to the Henhouse

Don't let the cat get your tongues, O Gentle Ones. Assuming that the government will engage in massive intervention (which we calculate to be an absolute certainty,) which is the more sensible plan... you know... from the point of view of the taxpayers?

So many questions...so few answers.