Wearing My Free-Market Economist Hat

....hearing Greenspan - a staunch defender of free markets - say:

“It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”

is short of remarkable. Possibly the last, and necessary, fix to the current financial crisis (if you don't count international countries). At this point, it seems almost inevitable that the U.S. government will become stockholders of some very large banks, regardless what the Obama administrations is currently saying. Once this occurs, it should take a year or more (smile), for the economy to start growing again, but not without significant inflation.

Krugman best lays out the case for the nationalization of failed banks.

First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

And TIME, and TIME, again, taking equity positions in real estate assets and bank assets during economic depressed times, reaps healthy profits when the economy turns around. So instead of giving banks capital and forgiving homeowners of their mortgages, the government SHOULD take equity positions in return for capital and debt forgiveness. In a couple of years, taxpayers will be the benefactors when the government sells their equity positions at the top of the market. It's not that difficult of a concept.

(Via NY Times)