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Tuesday, February 17, 2009

Nationalizing the Banks Seems Inevitable: How Bad Does It Have to Get First? By Joshua Holland,

There is a bottom-line to the banking crisis which the Obama administration appears intent on trying to avoid: some number of financial giants are simply insolvent. A recent analysis by NYU economist Nouriel Roubini -- known as "Doctor Doom" for his dire predictions about the collapse of the financial trading system, predictions that have since become painfully true -- estimated that the losses facing the American financial sector will reach $3.6 trillion dollars.

If the banks were nationalized, the government could declare a moratorium on foreclosures for the properties it controls, and move to restructure mortgages -- perhaps at subsidized rates -- for homeowners on the bubble.

This is an important part of the puzzle. So far, government efforts to bailout homeowners have had little success, in large part because privately held institutions have an obligation to their shareholders to avoid writing down the principle of loans made on assets whose values have tanked.

So far, all of the government's attempts to bailout homeowners have been structured as voluntary programs, and the terms that the banks require before deciding to bite have been too costly for most distressed homeowners to afford.

It appears that the idea of nationalization is gaining steam in policy circles, including now in conservative ones. Obama promised a pragmatic approach to the crises facing the country. Nationalizing big, failing banks may smack of statism, but the consequences of tinkering around the edges of the crisis are simply too dire; we've got to leave all options on the table.


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