The bank nationalization dilemma

During the campaign last fall Sarah Palin shouted out that Obama wanted "to experiment with socialism."

As reported in The Hill yesterday,

Douglass Elliot, a fellow on economic studies at the Brookings Institution who has written about nationalization, told The Hill, "Taking over banks can be portrayed as socialism, so it’s more difficult for a liberal to do it than a conservative."

The banking industry opposes any nationalization of banks as anti-competitive and outside the role of government.

"If you had government running the banks, in the long run, you’d destroy the private sector," said Scott Talbott, a vice president with the Financial Services Roundtable.

On the other hand, several prominent Republicans have spoken favorably about nationalization in the past week, including conservative Senator Lindsey Graham and former Federal Reserve Chairman Alan Greenspan.

Others in the financial industry have too: "Basically, nationalization is the only option left in my view," said Axel Merk of Merk Investments, a Palo Alto-based firm that manages Merk Mutual Funds. "It’s the fastest way to secure the system."

Some proponents of nationalization argue that the only way to fix the problem we're in and restore confidence among investors is to nationalize the most vulnerable banks and eventually sell off their valuable assets. "There are people out there who think nationalization is the way to go, and I think they're getting a good audience right now," said Brian Gardner of Keefe, Bruyette & Woods.

President Obama has, up to this point, resisted the idea. So here we have a reversal: Republicans calling for a "liberal/socialist" idea and Democrats resisting.

Can we be sure that this is a genuine evaluation and support from the Republicans and not a trick to lull Democrats into thinking they have bipartisan support, only to have them turn around and scream "socialism" to their gullible constituents?

I've been observing their dirty political tricks far too long to be sanguine about Republicans' motives. Just short of believing paranoid conspiracies is probably the healthy stance to take.

But let's also hope that Obama and his financial advisers are not shying away from a necessary solution in order to avoid political heat.

Ralph