Bankrupt Banks Should Be Taken Over

The Caretaker makes the case below that the government can't nationalize the banks because this is such a big country with thousands of banks. Yes, it would be practically impossible and undesirable to nationalize all the banks. But I really doubt that's what is needed anyway. Many small banks are not in that bad of shape, and many of them didn't even need or want money from the bailout, but they were basically forced to take it.

Essentially it seems that at least some of the biggest banks are effectively bankrupt, if their assets were 'marked to market,' as they say. When a company, large or small, goes bankrupt, it is essentially taken over by a government official (often a judge), the management is reorganized, creditors are paid, stockholders lose their shirt, etc. This isn't what we normally mean by 'nationalization', but it is a sort of temporary government takeover. Why should it be any different with our large banks if they go 'bankrupt'. I think it can be done.

However, there is a different problem that I've become aware of recently. Regular banks lend money, that is true, but there were also these huge secondary, non-banking markets for loans and debt that actually provided the bulk of the easy money for housing, cars, credit cards, student loans. These have now dried up and made borrowing money much more difficult for everyone. Banks cannot and probably should not try to replace this lending, since much of it was not a good idea to begin with.

The fact is that we should not go back to the kind of lending/borrowing that was the norm for the last decade or two, because it was fundamentally unsustainable to build up such levels of debt. And that means that our economy is going to shrink some, since there is going to be less consumer spending and more unemployment. We are unlikely to go back to 'normal,' if that means the swelling economy of the last 15 years or so. That is the awful reality of the incredible shrinking bubble economy that we are now experiencing. No 'stimulus' is going to change that reality, I don't believe. It could just make it a little less bad than it otherwise is going to be.