It's the best possible course to rescue our economy at this point; all the other options would be disastrous.
The painful but unavoidable reality of the financial crisis is that every dollar spent trying to prop up a failing bank is just good money thrown after bad; a taxpayer rip-off, short and sweet.
But in Washington, many are trying to avoid that fact nonetheless. Economist Paul Krugman wrote that the political establishment has "become devotees of a new kind of voodoo [economics]: the belief that by performing elaborate financial rituals we can keep dead banks walking." Goldman Sachs' economists estimate that those rituals might cost up to $4 trillion to perform.
It's time that the government stops flailing around with piecemeal bailouts and loan guarantees, takes over these institutions -- takes them out of private ownership -- sells off their good assets in an orderly way, trashes the toxic stuff and then resells them to the private sector down the road as leaner institutions that are dedicated to the primary purpose of banking: making loans and holding deposits.
Peacenik doubts that nationalizing the banks is the perfect solution. There are too many dominoes falling all at once. But the banks are at the root of this crisis. Their management does not deserve a bailout. Their management deserves jail and poverty. But Peacenik thinks nationalizing the banks is part of a possible, painful, muddling thru scenario. It has to be done. The alternatives aren't working. The world is witnessing incredible real time experiments in global monetary policy. The results of these experiments are apparent within days. Shovelling money into the black hole of banking has failed. Will the muddling through scenario work? Its Friday. Peacenik says maybe. Have a good weekend.
