Calls for nationalizing the banking industry have been bubbling since at least last September 2008, when the current Banking Panic began in the wake of the Lehman Brothers bank collapse, the initial AIG bailout, and the quick absorption of Merrill Lynch-Wachovia-Washington Mutual banks by their larger competitors, Bank of America, Wells Fargo, and JP Morgan Chase.
One of the first to raise the idea of the possible need for bank nationalization last fall were the editorialists from the Wall St. Journal, as well as ex-Federal Reserve chairman, Alan Greenspan. Of course, what the Journal’s editorialists and Greenspan meant by their idea of nationalization was the government should assume responsibility for cleaning up a bank’s bad assets at taxpayer expense, followed by the government quickly selling off the best of the bank’s remaining assets at firesale prices to new investors. The ‘nationalized’ bank would subsequently and promptly reopen for business in short order once again as a completely private institution, its ‘bills’ (bad assets) having been paid for by the taxpayer in the interim.
Nationalization is thus merely a kind of ad hoc bankruptcy proceeding declared and set in motion by the US government. The banks would not be ‘taken over’ in anything but a legal, formal sense. A quick transfer of bad assets follows, after which the institution is ‘spun off’ again and sold to private investors. Nationalization in this sense functions merely a tactical move for removing bad assets and resurrecting a zombie bank from the dead.