America’s horror of “nationalization” could be defused by handing out shares to all American households.

From Nicholas Kristof:

"Escaping the Bust Bowl

By NICHOLAS D. KRISTOF

In a moment, we’ll come to a two-step solution to the banking mess: First, tar and feather America’s 100 leading bankers; and, second, take over insolvent banks and distribute shares to members of the public (without ever using the term “nat...” — oh, never mind).

But first, let’s look at the problem. President Obama and Treasury Secretary Tim Geithner stumbled badly in introducing the bank bailout. But the larger conundrum is that a bailout is both: A) urgent and essential; and B) unfair and unpopular.

I was The Times’s Tokyo bureau chief during much of Japan’s “lost decade” of the 1990s, and one of the lessons of that debacle was the need to attack a major downturn with Colin Powell’s doctrine of “overwhelming force.” The neo-Hoovers criticizing today’s stimulus package make perfectly valid points about this or that flaw in the stimulus package. But the alternative is perhaps three million fewer jobs and the national economy looking like a balloon losing air.

Another thing: those railing against the stimulus are often the same folks who inherited an economy producing budget surpluses and transformed it into today’s fiscal catastrophe. In rural Oregon where I grew up, we were taught that if you’ve made a huge mess in someone else’s living room, it’s not polite to denounce the cleanup.

Japan also showed that you can’t fix an economy without fixing the banks. The term “zombie banks” was popularized then, referring to banks that were half dead but always allowed to stagger on. They must be put out of their misery.

Yet Japan also underscored that you can’t resolve a crisis when the public is more interested in punishing banks than rescuing them. That’s why I suggested tarring and feathering a group of prominent bankers. Populist rage then would be satisfied, and we could get on with reviving the banks.

Not feasible, you say?

A more plausible approach might be the one that some White House aides unsuccessfully argued for: tougher curbs on executive compensation. The Obama administration in theory limits certain compensation for top executives in companies receiving taxpayer dollars to $500,000, but the plan has loopholes big enough to drive a Mercedes through.

Yes, troubled banks might lose good people to hedge funds that can pay more because they’re not bound by these curbs. But that upsets me less than the idea of single mothers working multiple jobs so that their tax dollars can underwrite million-dollar bonuses at companies getting taxpayer assistance.

Tom Peters, a management expert, suggests capping the pay of C.E.O.’s receiving bailouts at that of a four-star general. As for the concern that the executives would quit, who cares? Mr. Peters writes that if all the top executives of the Fortune 500 companies were exiled to Elba, “performance of their companies would not on average deteriorate.”

As Representative Barney Frank asked the bankers testifying on the Capitol Hill dunk-tank on Wednesday about their bonuses: “Why do you need to be bribed to have your interests aligned with the people who are paying your salary?”

Senator Claire McCaskill, a Democrat of Missouri, had it right in her recent legislative proposal: cap compensation for all employees at companies receiving bailouts at the salary of the American president, which is $400,000 a year.

The administration should also uproot subsidies in the tax code for excessive executive compensation. Stratospheric compensation is unhealthy enough — why subsidize it? The Institute for Policy Studies estimates that these subsidies cost taxpayers $20 billion annually.

A tough stand on these issues might help give Mr. Obama the political space to bail out the banks; otherwise, it’s hard to see why the public would support a bailout of the size necessary.

As for the nature of the bailout, President Obama pointed to Sweden’s resolution of its bank crisis as a solution. “They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again,” he told ABC News on Tuesday. “So you’d think looking at it, Sweden looks like a good model.”

Mr. Obama then suggested that it wouldn’t work in the United States, partly for cultural reasons. But a broad range of experts believe that some variation of nationalization is the only way to revive the banks quickly without squandering vast amounts of taxpayer dollars. Even the managing director of the International Monetary Fund suggested that Washington think of the Swedish model.

America’s horror of “nationalization” could be defused by handing out shares to all American households. President Bush used to talk about building an “ownership society.” Well, giving shares in big banks to all American households would be a terrific way to do that.

For many Americans, it would be the first time they directly owned stock — and, finally, something good could come from the banking Bust Bowl of 2009."

Me:

12th, 2009 6:59 am

"America’s horror of “nationalization” could be defused by handing out shares to all American households. President Bush used to talk about building an “ownership society.” Well, giving shares in big banks to all American households would be a terrific way to do that."

My problem with this idea is that it's a recipe for massive fraud. If these shares can be bought and sold, you're going to need a massive PR campaign to tell people how to sell them, how much they're worth, etc. There will be ads claiming that only this person can buy them, etc.Will people need a broker to sell them? How much will this broker charge? Will they need a brokerage account to hold these shares? How much will that charge?

I'm for nationalizing some banks, but we should take them private and use the proceeds to help fund the things our government has committed itself to doing to get through this crisis.

Don the libertarian Democrat

— Don, Tacoma, WA