What Does Bank Nationalization Mean?

RENEE MONTAGNE, Host:

To find out what this may mean, we turn now to David Wessel. He's economics editor of the Wall Street Journal. Good morning.

DAVID WESSEL: Good morning, Renee.

MONTAGNE: So, David, what would nationalization look like? I mean, does it mean the government would take over Citigroup or Bank of America and run it like a government department?

WESSEL: Well, that's not the idea. The whole idea is for the government to take a failing bank, cleanse it of all its bad loans and lousy assets and then put the bank back into private hands. That's what the government did with a big bank called Continental Illinois in the 1980s. And, in fact, the federal government did that. The Federal Deposit Insurance Corporation took over IndyMac last year, owned it, operated it as a federal bank and is now in the process of selling it to private investors.

MONTAGNE: And, of course, it never used the word nationalize at the time. But what has brought us to the point where we're even talking about this?

WESSEL: So the government would love for the banks to raise capital privately. They're unable to do that in this climate, so the government is stepping in, buying shares to restore their capital so the banks can resume lending.

MONTAGNE: What argument for nationalization? Give us some more.

WESSEL: And then finally, there's the notion that it's just cheaper in the long run than this dribbling, dribbling in of capital. And if it's going to happen eventually, maybe it's better to just do it now and get it over with.

MONTAGNE: Well, you just mentioned shareholders. Shareholders, of course, can be us, as a lot of people would say. What are the arguments against nationalization?

WESSEL: I think there's a limit to how many big financial institutions the employees of the U.S. government can even hope to oversee or supervise, and so why make it bigger? And then finally, there's the concern that if the government nationalizes the banks and says some day it's going to return them to private hands, it may be a lot easier to say that than to actually do that. And most people don't think that it's a good idea in the long run for the government of the United States to operate the banking system.

MONTAGNE: You know, one thing, David - and just very quickly - in this country, nationalization is a very loaded term. How is that influencing this whole debate?

WESSEL: I think it illustrates how, fundamentally, Americans are uncomfortable with the government running the economy. And so this is the last choice of our policymakers. And they're going to try to make it sound palatable.

MONTAGNE: David, thanks very much.

WESSEL: A pleasure.

MONTAGNE: David Wessel is economics editor of the Wall Street Journal.

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