Why not nationalize?

Megan McArdle piles on:

…what works in the banking system of a small economy does not
necessarily work in a large one.  For starters, no offense to the
Swedes, but very few other countries are affected by what happens in
their economy.  One family, the Wallenbergs,
indirectly controls something like 30-40% of Sweden’s GDP.  Even now,
the Swedish financial system is considerably less broad and complex
than that in the US; it’s not a world financial center.  And in 1992,
everyone’s financial system was a whole lot less complicated than they
are now…

Possibly the biggest problem with this plan,
among many, is that Sweden is essentially able to command the labor of
its bankers; they have relatively few alternatives without starting
over in a new country and a new language.  American government has no
such leverage.  Yes, the folks in the mortgage departments royally
screwed the pooch, but running a major bank is not something you can
hand over to a GS-17.  Nor is it a job for academic economists. 

of course, the political ramifications in the United States are very
disturbing.  A small homogenous country with a parliamentary system and
a lot of social capital invested in the government is going to do
better at nationalizations than we will.  The fractious structure of
the American legislative system means–as we’ve just seen–that huge
amounts of political maneuvering and log-rolling will go into the
running of any national banking system.  Imagine the banking system run
by the Department of the Interior.

…The problem with
the Japanese system (or at least, one major problem) is that for
political, social, and career reasons, banks kept pouring money into
zombie firms, trying to salvage the bad loans of a decade ago.  Is a
nationalized banking system less or more likely to do this than a
private one, in America?  I imagine any banking head, appointed
or career civil service, would get a lot of calls from Senators and
congressmen demanding that the bank prevent companies in their
districts from going under.

There’s lot of talk in the blogosphere in favor of the Swedish plan, but not much consideration of its drawbacks. 


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