WHILE THE UR'S UNWILLINGNESS TO NATIONALIZE BECOMES HIM...:

The Nationalization Paradox: Americans are rightly skeptical of bank nationalization. But we might need to proceed anyway. (Vincent R. Reinhart, March 12, 2009,The American)

Despite our squeamishness about the term, nationalization will most likely have to be done. Until the financial institutions at the center of the global trading system revive, the greater economy will be held hostage because lending will be crimped and financial market activity will be impaired. In a perfect world such a step would not be necessary. We are far from a perfect world. [...]

Rewarding the bad behavior of management and the presumption of investors is not a welcome legacy for the future. But rewards should remain on the table for those who trusted their funds to firms with underlying value.

This is a problem as old as the Republic. At Alexander Hamilton’s urging, the new constitutional government honored the pensions of Revolutionary War veterans. Some had doubted they would be paid and sold their pension claims to speculators, who fed those doubts along the western frontier. To Hamilton, the precedent of repayment was critical. Fairness was not about how the current holders of the debt fared but about the perceived willingness of the United States to pay its obligations. The fair price of Revolutionary debts was the one that built in a certainty of payment. That is, his sense of fairness was about the burden of his precedent on future generations.

Expecting the current Treasury Secretary to match the first might be hoping for too much. But Hamilton’s successor should have the same concern for precedent that signals a well developed sense of fairness for current and future generations.

...holding off on the off chance you might not eventually need to do the deed is a mistake. Better an early unnecessary nationalization than a late vital one.

Posted by Orrin Judd at March 12, 2009 11:31 AM