Zombie Bank Apocolypse: Greenspan Gives Nationalization the Nod

As more and more economist, politicians, and citizens accept the reality that at least some of the major U.S. banks are insolvent, and that a temporary nationalization and restructuring may be the only way to remove toxic assets from their balance sheets and repair the credit markets, it is not suprising that the whisper of nationalization continues to grow.

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” said Alan Greenspan (a major contributor to the current crisis through policy that left interests rates too low). “I understand that once in a hundred years this is what you do.”

“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”

President Obama is correct in noting that, “We need to end a culture where we ignore problems until they become full-blown crises,” unfortunately, his administration is doing just that with TARP2.

While the "stress test" of the major banks continues to be a centerpiece of anticipation (especially given so few details), my concern is that if the Obama adminsistration is against nationalization, the likelihood that the test reveals insolvency and a need for restructuring decreases.