There's been lots written & said about bank nationalization - Krugman Roubini for, Lindsay Graham & Greenspan for keeping the option open, Chuck Schumer against. Greg Mankiw says he's for what I would call nationalization, but doesn't have the stomach (or something else) to call it that.
Two of the key 'first principles' I would keep in regards to nationalizing banks are:
- Eventually return the banks to the private sector. This applies to eventually turning Fannie & Freddie loose as completely private entities - no explicit or implicit guarantees.
- Don't give assistance to bad banks (Citi) which essentially acts as punishment to good banks.
Why those points are important.
- Serves to avoid what Mankiw calls 'crony capitalism', which if unregulated capitalism is dangerous throwing corruption on top of it will only make it worse. China is closer to 'crony capitalism' than pure socialism. Those with connections get to act like capitalists, those without, or those who have crossed those with connections lose out.
- Is why real nationalization is needed. The strings attached to the money need to be short and tied tight. The banks getting the most aid need to feel the most pain - have the most executives laid off, shareholder losses, and most massive restructuring.
If the actions are the same, being afraid of the word 'nationalization' is silly.