Nationalize the Banks.

• Author: Rothschild, Matthew
• Position: Comment - Viewpoint essay

One Treasury official after another is doing somersaults on a wire to distract us from the obvious: We need to nationalize many of the banks, not save them as private entities.

The banks got us into this financial mess in the first place by making unwise home loans and by speculating in unregulated credit-default swaps tied to those loans. They have taken the entire world economy down with them. They don't deserve to be bailed out.

If our government really believed in free enterprise, these banks would be out of business right now.

Instead, first the Bush Administration and now the Obama Administration have decided to act like an iron lung for the banks, pumping hundreds of billions of dollars into them to keep them alive.

There is no reason to do that.

And it would have been cheaper to buy them outright.

"The day we gave Citigroup their second infusion we could have bought them for the same $20 billion," says economist Dean Baker. "On top of that, we guaranteed $300 billion of assets. We could have bought Citigroup several times over."

Still, the banks aren't solvent. Baker estimates that the losses on most of their balance sheets outweigh their capital. This is a recipe for indefinite bailouts.

Nobel Prize-winner in economics Joseph Stiglitz also sees the irrationality of leaving the banks in private hands.

"In effect, the American taxpayers are the major provider of finance to the banks," he wrote on CNN's website. "In some cases, the value of our equity injection, guarantees, and other forms of assistance dwarfs the value of the 'private' sector's equity contribution. Yet we have no voice in how the banks are run."

We don't have a voice because the Bush Administration tied no strings to the $350 billion. But if we're the major shareholders, as we now are with Citigroup (taxpayers hold a 7.8 percent stake) and Bank of America (6 percent), we ought to have a major say. And if we're going to throw more money at them, why not just purchase the banks themselves?

The banks have not done what the government told us they were supposed to do when it lavished the first $350 billion on them. They didn't start lending more.

"The last thing in their mind was to restart lending," wrote Stiglitz. And even today, they have a strong incentive to sit on their cash.

"There is still no assurance of a resumption of lending," Stiglitz explains. "Having been burned once, many bankers are staying away from the fire. ... Many a bank may decide that the better...