Since they are the big issues these days.
Real Capitalists Nationalize
Interfluidity:
The reason to nationalize a bank is because the bank has failed and its former owners have no legitimate claim to its assets. The government has been forced to offer support with public money, thereby purchasing the corpse fair and square. We take the bank into public ownership because taxpayers who have been conscripted to accept extraordinary losses are entitled to whatever gains follow the reorganization they finance.
I highly recommend reading interfluidity these days – his opinions are well reasoned and presented during the difficult financial times (his post about the new Fed balance sheet is a good read). He has a post together summarizing a lot of the links of the current nationalization debate.
This will happen sooner or later – that the government has to create a S&L type structure, perhaps modeled on Sweden’s efforts in the early 1990s, to pick up the pieces after wiping out the equity holders. I think it would be better to go ahead on a timetable of our choosing, using the capable minds at FDIC to determine what banks can stay afloat. Creating “zombie banks” was always a worry during the financial recovery mess, and that is what is likely to happen if we redo what was accomplished under the previous TARP moves. Like I did about a potential GM/Ford bankruptcy, I worry about finding buyers for good pieces that could be hauled to the selling block.
For whatever it is worth, TARP appears to be making an annualized 16% profit. So when we say we are bailing out $X, we aren’t actually losing $X.
Stimulus Counter Arguments
There’s a lot of odd dialogue about why the stimulus is a bad idea – ranting about the government, questionable metaphors about farms and tractors or Robinson Crusoe and net building. Kevin Murphy’s slides here are pretty sharp as a counter-stimulus package argument. He at least has the decency to math it up, so he can be clear about what assumptions he is relying on, with what metrics, and we can see the backbones of the Treasury View and the “crowding out effects.”
If you are against the stimulus package, and especially if you are for it, thinking in terms of: “f(1-λ) > α+d” can clarify quite a bit. The slides aren’t that bad to pick it up.
Counter-Counter arguments are Brad Delong and the commenters here. I don’t believe people unemployed during the current crisis are choosing to stay unemployed, I don’t believe the first wave of spending will be that inefficient, I don’t see the government crowding out productive resources during the next 2 years, I don’t think Ricardian Equivalence will kick in (if anything, the past 8 years seem to be a slap in Ricardian Equivalence’s face). I think there will be a financial multiplier with the investment spending. Those put together lead me to believe the stimulus is both necessary (it would be immoral not to do it, if we can) and a good idea.
