In an interview with ABC News’ Terry Moran, President Obama made a few comments about nationalization.

 MORAN: There are a lot of economists who look at these banks and they say all that garbage that’s in them renders them essentially insolvent. Why not just nationalize the banks?

OBAMA: Well, you know, it’s interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obama: No ‘Easy Out’ for Wall Street, 2009-02-10

On the face of it, we have two paths, one right and one wrong.  Tradition apparently dictates the wrong one.  I say tradition, because while this country has thousands of banks, many are healthy.  As Kedrosky notes, that objection ignores the relative GDPs of the two countries as well as the fact that the six largest banks represent the lion’s share of the problem.

It is possible Obama does not feel there is sufficient political support for nationalization, and so will run with the current plan until attitudes are more favorable.  I acknowledge that this is only conjecture, but feel it appropriate to ascribe some measure of strategic planning to this administration.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.