Comment & Debate
Liaquat Ahamed. “Nationalizing the Bank Problem”. Featured Comments on New York Times Room for Debate. January 22, 2008 – The third route is plain and simple nationalization — that is for the government to inject capital into banks in return for common equity. As a matter of arithmetic, because most of the capital of banks has already been wiped out, this would give the government a majority stake in many banks. We could of course ask the taxpayer to provide capital to banks but allow the current shareholders to retain the bulk of the ownership and control. Indeed that is what we seem to have been doing the last few months. There used to be name for that: “crony capitalism.” Far better that if the public is to provide the risk capital and take on the prospect of further losses, it should get the benefits of any upside.
I agree that nationalization of banks is a last resort. But we are at the point of last resorts.