Nationalization After All?


It ain’t over yet, folks—both the banking crisis itself and the debate over what should be done about it. Barack Obama and the nation’s major bankers made nice at a White House meeting on Friday, with everyone agreeing that 'we're all in this together,'' as Obama spokesman Robert Gibbs put it. The bank chiefs are happy that Tim Geithner and Ben Bernanke have emphatically rejected nationalization of the worst-hit banks, saying that critics like Paul Krugman who embrace the scorched-earth approach don’t understand how difficult this would be (think AIG). Geithner and Bernanke (whom I've profiled here and here, respectively) would prefer to stand pat and leave the banks intact; they hope that what’s left of TARP, along with the public-private partnership funds designed to buy up toxic assets and the TALF securitization plan, will be enough to nurse most of them back to health. But Geithner and Bernanke have also hinted that the government may have to effectively take over at least a couple of major banks anyway after the ”stress tests” are completed in April. And with the TARP funds running down—Geithner is cagey about how much exactly is left-- that’s going to mean another call on a recalcitrant Congress for a lot more money. “I think the taxpayers are going to pay trillions,” says Harvard economist Ken Rogoff.


It’s not clear that Geithner and Bernanke -- who have been working so closely recently they might as well be called the Tim-and-Ben show -- see eye to eye themselves on this issue. Geithner has insisted that all the government might do is to make a substantial investment in the troubled banks, while Bernanke’s language has hinted at taking some control of them. A senior economic official in Washington told me in recent days that, when they move, the Treasury and Fed are still going to have many of the tools of ownership and supervision that come with nationalization, even though they won’t force the banks into bankruptcy or “haircut” the banks’ creditors. “I think they’ll do something in three to six months,” says Rogoff. Or sooner: Stocks stocks tumbled around the world again today, in part because of the news that GM and Chrysler may not make it--but also in response to reports that Bank of America and JPMorgan Chase have indicated conditions had worsened for them.

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