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What strikes me is the weakness of the opponents to nationalisation's arguments. Most of the time, it boils down to the postulate that governments are bad owners/managers...

A good example is given by John Gapper in the FT:

FT.com / Columnists / John Gapper - Nationalisation is not a panacea

The fact remains that governments are bad owners for banks, as anyone who has followed the history of Germany's regional state-owned banks can attest. They are heavily conflicted because, although politicians like to castigate bankers for risk-taking, they also push them to lend freely in order to make the voters happy.

But in the first part of his paper, he makes at length the case for the nationalisation. And, at the end, he even shows that only the nationalisation of the overall financial system would make sense:

Prof Buiter argues that one clear benefit of nationalisation is that it would eliminate the uncertainty over how to value troubled assets taken from the balance sheets of banks. Any government that owned both "good bank" and "bad bank" could value them as it wished.

In practice, that would only be true if the entire global banking system, complete with all mortgage and asset-backed securities, were nationalised. Sweden could value Swedish property loans as it saw fit in the 1990s, but global finance has taken that luxury away.

To be honest, he has a point when he underlines the sheer size of the task:

More specifically, the costs of a full public recapitalisation of banks in the US or UK, in addition to the public ring-fencing of their troubled assets into state-controlled "bad banks", would be enormous.

This is particularly true of the US, which cannot just acquire a few large banks, like the UK or Sweden, and be satisfied that it has dealt with most of the banking market.

The plan being mulled by Barack Obama's new administration and the Federal Deposit Insurance Corporation to corral bad assets into a vehicle like the Resolution Trust Corporation, which took Savings and Loan assets in 1989, could cost $1,000bn.

Then consider that the top 10 US banks, which are now regarded as short of capital, have equity of about $800bn. Nationalisation of only these banks, complete with recapitalisation, could bring the bill to the taxpayer to more than $2,000bn, which puts the $350bn left in the Treasury's $700bn troubled assets relief programme into a very sobering perspective.

This is certainly true, but, given the situation, it would be even harder (and costlier) for the banks to find these huge amounts of money on the market...

 

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed Jan 21st, 2009 at 09:38:21 PM EST

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