The N word
No, not that N word, the other N word. Nationalize. As in nationalize a financial institution here and there.
Do you know how Paul Krugman is following the TED spread as an indicator of current financial troubles? I’ll be following how many times the N word pops up in Google News. Right now the top mentions all concern other countries, of course including Northern Rock in Great Britain. So far this is the closest I’ve found to hints of nationalization for the United States; in the blogosphere Nouriel Roubini is saying nationalization is better than bailouts.
The Swedes, of course, nationalized Nordbanken, their #2 bank at the time, in the early 1990s, during their financial crisis. They also nationalized Gotabanken and supplied funds to several other institutions. The belief at the time was that loan liquidation would have been even worse. And since Nordbanken was on life support anyway, and the government had to limit systematic risk by paying off creditors anyway, why not just control the bank directly? The bank was subsequently re-privatized. You’ll find more background on the Swedish experience here. Of course in these situations none of the options are pretty. But keep in mind that the Fed (and ultimately, the taxpayer) is already residual claimant on the Bear Stearns deal and then read Mises on the dynamics of interventionism.
There are many things we do not do as well as the Swedes. In any case, if use of the N word remains spotty or non-existent in the U.S., you’ll know that things are going OK, at least relative to what might have happened.
Addendum: Brad DeLong has much to add, including some policy recommendations. Arnold Kling doesn’t agree.