« Help for homeowners | Main | Good news in North Carolina »

March 16, 2009

Should we nationalize the banks?

The notion of the federal government directly taking over banks has been receiving some serious attention. Why would this be done? What would it mean? And who would be the winners and losers?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it would be done, I think, as a last-ditch effort to save banks that perhaps on paper are really insolvent. That is, their liabilities are greater than their assets. And I think it would be an effort that would only be used after the federal government decided what they're doing now in terms of infusing new money into the bank, providing low-cost loans to them, is not going to work. What it would mean would essentially be that we taxpayers now own the banks. And the federal government would go in and perhaps put in their own managers. They would go in and put new rules in, and they would try to reorganize those banks they had taken over to get them into some sort of good financial shape. Who would be the winners? Who would be the losers? Big losers potentially might be the shareholders, the existing owners of the banks. It depends on what they would get in terms of a buyout. The winners - hopefully - would be all of us in the sense that if this effort were successful that it would return those banks to solvency. It would help solve a big problem in the economy, but we've never done this before. And this plan has had mixed success in other countries. I don't think it's a road we want to go down unless it's absolutely the last alternative."

Posted by Dave at March 16, 2009 08:32 AM