In Which Zandar Answers Your Burning Questions

The Great And Mighty Kroog asks:

Now, something must be done to shore up the financial system. The chaos after Lehman Brothers failed showed that letting major financial institutions collapse can be very bad for the economy’s health. And a number of major institutions are dangerously close to the edge.

So banks need more capital. In normal times, banks raise capital by selling stock to private investors, who receive a share in the bank’s ownership in return. You might think, then, that if banks currently can’t or won’t raise enough capital from private investors, the government should do what a private investor would: provide capital in return for partial ownership.

But bank stocks are worth so little these days — Citigroup and Bank of America have a combined market value of only $52 billion — that the ownership wouldn’t be partial: pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.

My response to this prospect is: so? If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?

Well, as the Kroog points out, that's exactly what we're going to get: ownership of the securitized debts and none of the actual assets (stockholders and banksters get to keep those.)

So why is the Obama administration so loathe to call nationalization of the financial industry what it is? After all, they're not going to have a choice: America's banks are across the board insolvent. The sooner Obama nationalizes them, the less financial damage the country takes.

But of course, the more political damage he endures. Obama's guys aren't going to want to be responsible for the end of capitalism in America, of course...but it's too late. We're already throwing trillions at the banks. They're already de facto nationalized.

Why not complete the process as soon as possible?