Nationalization of Banks Is Only the Beginning

Alan Greenspan said "It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring". The problem is not whether but when American government will announce the nationalization.

However, from the experience of Japan, the nationalization is the easier part. It's more difficult to manage the banks and dispose of the bad assets. Even more difficult is drawing the line which is to bailout and which is not. If the government bails out Citi and BankAmerica, and let other banks fail, the latter would sue the government. If the government bails out every bank, the budget deficit would be astronomical and dollar would crash so that the crisis would spread globally.

In Japan, Long-Term Credit Bank was nationalized after the severe attack to its stock in 1998 and Nippon Security Credit Bank followed. It was eight years after the burst of the bubble, but the problem was not finalized. Other "mega-banks" continued to dispose of the bad loans by "own responsibility". When Finance Minister Yanagisawa was fired and Economic Minister Takenaka took over his position in 2002, the disposal accelerated, because Takaneka threatened mega-banks saying "there is no bank which is too big to fail".

So the nationalization is not the end but the beginning of the problem. It's inevitable but not so effective measure to restructure banks. Anyway they should do it themselves. Government can only help it.