May 08, 2009

Over at The Baseline Scenario, Simon Johnson and James Kwak respond to the stress tests with a post arguing, once again, that any signs that the banking system might not be in terrible shape are false, and that the government should step in and take over the unhealthy banks. In place of real nationalization, they argue, we’ve ended up with a “broken-down, undercapitalized system that is nominally in private hands.”

For the most part, this piece simply rehearses familiar arguments about the insufficiency and dangers of the Obama Administration’s current approach. But there are a few points in the piece that are worth remarking on Johnson and Kwak argue that the habit of calling bank takeovers “nationalization” was started as a way of demonizing the idea, and insist that no proponent of taking over the banks wants the government to run them for “an indefinite period of time.