Brookings Report On Bank Nationalization - Discusses The Logistical Hurdles That Must Be Overcome

[Median Democrat]

Here is a nice report by the Brookings Institution on nationalization. On the one hand, it agrees with many of the points raised by Paul Krugman regarding the possible necessity of nationalization. However, unlike Paul Krugman, the report also disloses and discusses the significant trasitional costs of nationalization, and the incredible amount of governmental resources that would be needed.

http://www.brookings.edu/~/media/Files/rc/papers/2009/0225_bank_nationalization_elliott/0225_bank_nationalization_elliott.pdf

This is my main criticism of Paul Krugman. His discussion of nationalization is misleading because he never addresses the logistical hurdles that must be overcome to nationalize the banks. Thus, he suggests that nationalization will be quick and easy.

I find the Brookings report to be more informative than Krugman's opinion columns, because it does a better job of actually explaining what nationalization entails, and the difficulties associated with nationalization, while also suggesting that nationalization is the probable way to go with respect to certain banks.

/snip

Bank nationalization is the topic “du jour” in Washington and on Wall Street. Citigroup has essentially proposed a partial nationalization that would give the government 30-40% ownership.
The stock market, for its part, is so concerned about the possibility of wider bank nationalizations that key Administration and Fed officials are spending much of their time trying to calm the markets by underlining their desire to avoid nationalization. Unfortunately, people often seem to be talking past each other in this debate.

Nationalization can be a confusing topic because it means different things to different people and there are a variety of reasons given by advocates for supporting such a move. This paper explains the various meanings and purposes of “nationalization,” lays out a framework for evaluating the necessity and usefulness of bank nationalization, reviews the most critical implementation issues that would arise, and provides some recommendations. Please see also the author’s previous paper, “‘Bad Bank’, ‘Nationalization’, ‘Guaranteeing Toxic Assets’: Choosing Among the Options.”1

The following questions are addressed below:
• The background: Why might widespread nationalization be necessary?• What does it mean to “nationalize the banks?”
• What would be the purposes of nationalization?
• What are the arguments against nationalization?
• How has nationalization worked previously in the U.S. and internationally?
• How could nationalization be implemented most effectively?
• What should we do now?

Full nationalization may prove necessary as a last resort for one or two of the larger banks, but should only be undertaken when, and if, it is clearly necessary. More widespread nationalization is unlikely to be needed unless the economy performs substantially worse than most economists expect. Although we all crave certainty, it would be better to wait until we knew that this pessimistic case was likely before nationalizing more widely, given the serious social and financial costs of that extreme step.

/snip

[Aloha Spirit]

1. Hmm will Citigroup be nationalized.

[Marsala]

2. Citigroup tops the list of "Most Likely to Fail", so yeah

If any bank is nationalized, Citigroup will be.