Stop Stalling and Nationalize Bailout Banks: Krugman

The sooner we take over zombie banks, the better, says Krugman

By Jason Farago, Newser Staff

Posted Feb 23, 2009 9:24 AM CST

(Newser) – The case for temporarily nationalizing some of America's biggest banks is so persuasive that even Alan Greenspan, the baron of laissez-faire capitalism, thinks it's a good idea. Yet the Obama administration keeps proposing half-measures and workarounds. New York Times columnist Paul Krugman says the government should get it over with: "The longer we live with zombie banks, the harder it will be to end the economic crisis."

Citigroup, Bank of America, and other giant banks should already have failed, says Krugman, and only survive because "the government is acting as a backstop, implicitly guaranteeing their obligations." Only massive capital injections can save them—and for that price, the taxpayer deserves to own the institutions. The FDIC has already taken over smaller banks, Krugman notes; now, only temporary nationalization can prevent another Lehman-style collapse of banks "dangerously close to the edge."

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U.S. Treasury Secretary Timothy Geithner meets journalists at the end of the G-7 (Group of Seven) Finance Ministers and Central Bank Governors meeting, in Rome, Saturday, Feb. 14, 2009. (AP Photo/Pier Paolo Cito)

Fed chairman Ben Bernanke, treasury secretary Tim Geithner, and deputy assistant treasury secretary Mark Sobel in Rome, Saturday, Feb. 14, 2009. (AP Photo/Pier Paolo Cito)

President Barack Obama, center, talks with White House guests before the start of entertainment in the East Room following a dinner with the nation's governors in the State Dining Room, Sunday, Feb. 22,... (AP Photo/Haraz N. Ghanbari)

Treasury Secretary Timothy Geithner arrives in the East Room of the White House following a dinner for the nation's governors hosted by President Barack Obama in the State Dining Room, Feb. 22, 2009. (AP Photo/Haraz N. Ghanbari)

President Barack Obama listens as Vice President Joe Biden speaks to mayors from cities across the United States, Friday, Feb. 20, 2009, in the East Room of the White House. (AP Photo/Ron Edmonds)

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What we have now isn’t private enterprise, it’s lemon socialism: banks get the upside but taxpayers bear the risks. And it’s perpetuating zombie banks, blocking economic recovery. - Paul Krugman, New York Times columnist

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Stop Stalling and Nationalize Bailout Banks: Krugman