Emulating failure, Dems look at nationalizing banks

NY Times:

Only five days into the Obama presidency, members of the new administration and Democratic leaders in Congress are already dancing around one of the most politically delicate questions about the financial bailout: Is the president prepared to nationalize a huge swath of the nation’s banking system?

Privately, most members of the Obama economic team concede that the rapid deterioration of the country’s biggest banks, notably Bank of America and Citigroup, is bound to require far larger investments of taxpayer money, atop the more than $300 billion of taxpayer money already poured into those two financial institutions and hundreds of others.

But if hundreds of billions of dollars of new investment is needed to shore up those banks, and perhaps their competitors, what do taxpayers get in return? And how do the risks escalate as government’s role expands from a few bailouts to control over a vast portion of the financial sector of the world’s largest economy?

...

Considering how state control of capital worked so poorly in socialist economies, not to mention the Soviet Union, it is hard to imagine why they would seriously consider radicals properly called "state capitalism." They could consider the Barney Frank explanation of the government causing the problem so it should pay damages.

The there is also the question of what to do with all those banks who did not screw up. Will they be at a competitive advantage of disadvantage if the government nationalizes the screw ups? Will the nationalized banks have to make all their employees civil servants and pay them on a GS scale. That would probably result in a brain drain to other businesses or banks.