Whither the Banks

or Wither the Banks. It's sort of a pun, you know.

Very, very generally there are three things that can be done with the nation's crippled banking system.

1. Laissez-faire. The Ayn Rand, hardcore survival of the fittest philosophy. Leave them alone, the strong will thrive and the weak will perish. This is the Radical Republican solution which, parsing their rhetoric, is to do as little as possible as slowly as possible. It's been tried before (See Hoover, Herbert 1929-1932.) and failed horribly. Take away the weak banks and there will not be enough banks remaining to move the economy and it will continue a sickening decline.
   
2. Socialism. The government supports the failing banks, keeping their structures and personnel in place. This too has been tried before (See Japan 1986-present) and has also failed horribly. The problem here is that the same stupid business models are being driven by the same ignorant banking executives. Government resources are wasted propping up the weak sisters. The stronger banks become tainted by the weak banks and, in the end, it all becomes a generally weak mishmash. Stagnation. This was Hank Paulson's plans, as far as he had any plan at all. As far as I can see Timothy Geithner is planning to wander down the same path.
   
3. Nationalization also here. The government takes over the banks entirely, running them for the common good until the economy recovers. This has been done in the past very successfully in Sweden. France has nationalized and then later privatized their banking system several times. The argument against this is that nationalized banks would be less efficient than private banks. Given how inefficient private banks are right now, that is not a strong argument.
   

Baby steps and half measures will not work. The longer we wait to nationalize the nation's banks the worse things will get.