The N Word

Adam Davidson of Planet Money had an interesting interview with Treasury Secretary Timothy Geithner on Wednesday's podcast. Friday's ep follows up with varying opinions on the interview from a few big names, including Russ Roberts of EconTalk.

Geithner toed the company line to an almost ridiculous degree, but it's what one expects. In many ways he is the most powerful, influential person in the world at the moment, and if he orders his eggs over-easy rather than scrambled it could cause markets worldwide to crash.

It's to the point where he refuses to even utter the word "nationalization," although he talks about "that idea" or "that strategy" in response to Davidson's questions. But despite his dancing around the issue, he seemed to clearly deny that nationalization as such is not an option this administration will pursue, even before the bank stress tests have been performed. Nationalization, that is, in the sense of complete government ownership, management and control; one could certainly argue that banks are nationalized to a significant degree already considering the TARP funds giving taxpayers a big stake in money center banks as well as the recent news about Citi. And that's not to mention the implicit and explicit government guarantees for banks and depositors. Increasing nationalization will be a change in degree moreso than kind, although there is a clear line between propping up balance sheets with huge share percentages and actually assuming management.

Friday's episode also has an interesting interview with William Isaac, who nationalized Continental Illinois Bank while heading the FDIC during the Savings & Loan crisis in the '80s. (CIB was later purchased by Bank of America.) Isaac cautions against complete nationalization both in his interview and in his recent article in the WSJ. As one uniquely qualified to speak on the subject, it seems we would be wise to listen to him.

Geithner's recent comments have been this administration's strongest yet holding the line against complete nationalization. The financial markets won't stabilize until investors have a clear idea of the government's course of action with regard to the troubled banks. We need our confidence back - even if it's confidence in an imperfect solution.