1. SOCIALIZE THE LOSSES: Leave the banks in private hands, and buy up their toxic debt (at least $1 Trillion). These toxic instruments would then be put into a monster "aggregator bank." This is what the USSR (United States of Socialist Republicans) wants.The first option represents a play on what Hank Paulson and the Bush administration did - simply bailout and hand over money to private market players who made incredibly stupid decisions. The only real pain is suffered by the American tax payer. The stupid and greedy win.
2. PARTIAL NATIONALIZATION: Partially nationalize the banks by purchasing a controlling interest in their stock at current prices, and then inject them with taxpayer money (which would require more than $1 Trillion). Democrats fear this route because they don't to be labeled socialists.
The second option offers a clean break with the Bush administration, but would entail imposing significant lossses on shareholders.
I like the second option for two reasons.
First, partial nationalization would allow banks to begin renegotiating with home owners who are either up-side down on their mortgages, or facing a rate adjustment over the next three years. The government will cover the banks losses. We're going to have to cover these losses any ways, so we might as well as do it the right way and get some money into the pockets of Main Street.
The second reason I like partial nationalization is that it would send a signal to shareholders around the world that they need to keep an eye on company executives and watch their investments. They can't continue to privatize the profits and socialize the losses. Simply put, the shareholders and stupid investors who allowed this mess to develop because they didn't want to stop the constantly "inflating profits" gravy train don't deserve a taxpayer bailout.
So, if the choice is between "socializing the losses" (Choice #1) and partial nationalization (Choice #2) I say we do it right and teach "stupid is as stupid does" a lesson.
I'll have more to say on this on today's program.