Is bank nationalization cheaper?

I'm sure you've reading or hearing reports of the $4 trillion bailout.  I still don't know what this figure is supposed to mean, but it is incorrect to respond with something like the following: "that's really expensive, I guess we do need to nationalize the banks."  As one commentator on CR responded (approximately): "If Uncle Sam bails out the banks, who will bail out Uncle Sam?"

Bank nationalization is (possibly) cheaper when the banks have upside profit potential, which is then captured in whole or in part by the government.  But say that banks are in the red by $2 trillion for ever and all eternity.  Taking over the banks simply means that the government picks up these losses as owner.  Government ownership makes it less likely, not more likely, that bank creditors will "take a haircut."

Nationalization isn't going to solve this kind of cost problem. 


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