A Plan that Obama Can Bank On

As the old song goes, the thigh bone's connected to the knee bone, the knee bone's connected to the leg bone, the leg bone's connected to the … you get the idea. The entire economic crisis is connected to the woes of the banking industry. We loathe these institutions for good reason. But the brutal truth is that we need 'em. If we don't figure out how to get the hundreds of billions of dollars in toxic assets off the balance sheets of the megabanks, then credit will remain frozen and it's only a matter of time before we're all eating cat food.

This doesn't mean President Obama has to drop everything else and just focus on banking, which is the argument advanced by the same knuckleheads who didn't see the collapse coming. There are only so many hours in a day that any man should be made to discuss credit-default swaps. Good presidents multitask and strike quickly across a broad front early in their terms. But Warren Buffett is right when he says that the president needs to be clearer on the subject of the banks.

So let's take a little jaunt into that byzantine world. With some common sense, we should be able to puzzle through the various remedies. The alternative is to let the pinstriped insiders make all the big decisions. Obama told a group of CEOs last week that after stress-testing the banks (learning the extent of their insolvency), the government will "provide [banks] the support to clean up their balance sheets." That sounds good, and nearly everyone agrees that recovery depends on it. But what exactly does it mean?

We don't know yet. After proving too vague in a February rollout, Treasury Secretary Tim Geithner now says he will unveil the new plan soon. He and Larry Summers are dropping hints, but the specifics are still being worked out; we should dive into them now, before it's too late.

There are basically four options to address the banking crisis, two of which are nonstarters. The first is to celebrate the recent uptick in banks' stocks (Citigroup's share price now exceeds its ATM fee!) and do nothing—let the market exercise its healing powers. We tried that once before, under Herbert Hoover. Not smart.

The second option is to nationalize the banks. True nationalization means permanent government ownership, which is favored only by a few aging socialists. If things get bad enough, we could get a temporary takeover, but calling it nationalization just polarizes the debate. So please join me in banning the "N" word.