The Great Debate UK

from The Great Debate:

Redefining the sacred in the banking rescue

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences.

It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred.

Sometimes that is utterly right, but in this case it is really a false opposition. The Federal Deposit Insurance Corporation takes control of failed U.S. banks almost every Friday, and while taking some of the biggest over would pose huge problems, it should be possible to do it, to speed recovery and to hang on to what is essential: a market-driven system of capital allocation and a credible 3- or 4-year glide path to privatization for those assets and institutions that end up in taxpayers' hands.

Fed Chairman Ben Bernanke added his voice to those maintaining that the crisis would be contained -- no, wait, that was 2007's line -- that the banks wouldn't be nationalized.

from The Great Debate:

Nationalisation by autumn, bank on it

-- James Saft is a Reuters columnist. The opinions expressed are his own --

jimsaftcolumnLike it or not the United States will be forced to nationalize large swathes of its banking system by the time the leaves fall from the trees in Washington.

The tragedy is that we will have to wait that long and that the costs will mount.