THE PROBLEM WITH NATIONALIZATION

The chorus for nationalizing America's struggling banks is growing louder.

In principle, temporary nationalization in some instances could be the least-cost approach. The example of the Swedish banking crisis of the early 1990s is most often cited by nationalization advocates.

The bad assets, mostly real estate, were sold relatively quickly. The needed workouts brought cries that borrowers were being squeezed. In short, the resolution was handled professionally rather than politically.

The contrast with the current U.S. crisis could not be sharper:

• From the beginning, the handling of the U.S. crisis has been politicized.
• The partisanship is as toxic as the bad assets on bank balance sheets.
• Both parties are coming up with schemes to impede the process of foreclosing on homeowners who can't afford their homes, which would get those homes into the hands of new owners who can afford them.

Does anyone believe that a government bad bank will squeeze homeowners?

To ask the question is to answer it.

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