Bank Nationalization: Back on the Radar With Stress Test Results

Whatever you do, don't smile when you say the words "bank nationalization." An angry radio listener accused me of being the Marlo Thomas of finance -- "Your cutesy 'That Girl' delivery ran counter to the implications of what you were saying about nationalizing our financial institutions, comrade." Nice touch with the "comrade," no?

Why are folks so mad about the word "nationalization"? Lots of smart people, including economist Joseph Stiglitz, NYU profs Nouriel Roubini and Matthew Richardson and Nassim Taleb of Black Swan fame, believe that nationalization would be a quicker way to clean up the U.S. banking system.

But that was the funny part. I wasn't suggesting nationalization, just stating that the only thing missing from the current process was Uncle Sam kicking out management and really taking over, an idea that's frightening to anyone who's ever dealt with a federal agency. In other words, the government is providing money, but not demanding control.

You're going to hear the word nationalization crop again this week, as the stress test results are released. Instead of freaking out over the word, remember that the government has made it clear that the last thing it wants to do is operate one of these massive institutions.

For the record, I'm not a fan of nationalization -- the concept sounds good in the textbooks, but these companies are far too big for Uncle Sam to manage. I also don't think that we have the time to throw out management -- after all, who is in line to take over? I do believe that when the the government injects scads of money into any enterprise, that there should be strict reporting, oversight and communication with the public.