Warning: sky may be falling.
Former Fed chairman and known economic interventionist Alan Greenspan today predictably called for the nationalization of failing US banks, is what the headlines would read in an alternate universe, where we apparently now live. Seriously, which one of you guys crossed the streams? Crazy world we live in, up is down, Republican Senators also supporting nationalization…
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” [Greenspan] said. “I understand that once in a hundred years this is what you do.”
Alan Greenspan has himself been alive for one hundred years, so this is why he would say such a thing. While he will likely never accept a bit of blame for helping cause the crisis, it’s nice to see him embracing a solution to it that might actually be viable.
What these wacky men are talking about is the Swedish model. No, not the Swedish model with the blonde hair and the bikini and…well, this is a family site. The Swedish banking model who is also surely very sexy and is the financial opposite of the Japanese model, which we are currently following, is what’s important here. Under the Swedish model (where we’d all like to be, I’m sure), so called because it is what Sweden did, failing banks are nationalized until they are no longer failing banks and then banks are taken public again by the government, allowing the it to recoup most or all of the taxpayer money it sinks into the banks. Crazy talk!
The Japanese model is to continue throwing money at failing banks, hoping that some of it will be magic money that fixes everything. It worked for Japan about as well as it’s been working for us so far, which is all the reason in the world to assume it will begin to work soon, maybe after the next capital injection. We just need to keep believing, even though Citi and BoA have had more given to them in bailout funds than either company is actually worth right now.