Martin Wolf’s excellent article on the pros and cons of nationalisation

Baseline Scenario posted a commentary on the pros/cons written by Martin Wolf and referenced in a recent letter to The Financial Times by Peter Boone, Chairman, Effective Intervention; Centre for Economic Performance, London School of Economics, UK. The article was published in FT on March 3, 2009 and includes charts/graphs and a clear explanation.

Lindsey Graham, the Republican senator, Alan Greenspan, the former chairman of the US Federal Reserve, and James Baker, Ronald Reagan’s second Treasury secretary, are in favor. Ben Bernanke, current Fed chairman, and an administration of liberal Democrats are against. What is dividing them? “Nationalisation” is the answer.

In 1978, Alfred Kahn, an adviser on inflation to President Jimmy Carter, used the word “depression”. So angry was the president that Mr Kahn started to call it “banana” instead. But the recession Mr Kahn foretold happened all the same. The same may well happen with nationalisation. Indeed, it already has: how else is one to describe the actions of the federal government in relation to Fannie Mae, Freddie Mac, AIG and increasingly Citigroup? Is nationalisation not already the big financial banana?

Much of the debate is semantic. But underneath it are at least two big issues. Who bears losses? How does one best restructure banks?

http://www.ft.com/cms/s/0/f24fc392-082a-11de-8a33-0000779fd2ac.html?nclick_check=1