William Isaacs, a former head of the FDIC, is annoyed with the chatterers who say that the banking crisis simply requires nationalization and that’s that. In a WSJ op-ed, speaking as someone who’s “done this before”, he argues that nationalization wouldn’t work for us and that the Swedish model is a joke. Basically it boils down to the biggest banks being way too big, with our top 10 institutions controlling some 2/3 of the nation’s banking assets.
- Nationalization would be contagious. Once you do it to a few banks, the shorts and speculators would go after the others, forcing the same fate upon all of them.
- There’s no reasonable exit strategy. There aren’t any obvious buyers, except perhaps foreign money, which would be undesirable for national security reasons.
- Replacing management would be tough. If you decapitate senior management at so many banks, who has the experience to run institutions of this size and complexity?
- Sweden, he says, is completely irrelevent, given its size and the fact that it nationalized only after its major bank had collapsed.
His solution: More capital injections until the banks get healthy, a la yesterday’s announcement from the Treasury and the Fed.