Is the US, for long the home of free markets, turning socialist? Not exactly, but...
It’s no secret that a large number of US financial institutions are in a hard place. The bailouts being designed and implemented to rescue them have raised ownership questions that defy easy solutions.
In his column for The New York Times, economist Paul Krugman has questioned why the government is not taking over these banks if it is injecting them with massive amounts of cash. “If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” he asks.
A plausible response could be: can competent owners, who ensure good returns to shareholders, be found at this time? The stratospheric leveraging indulged in by these banks was, after all, an attempt to generate profits. If historical evidence is anything to go by, government ownership is unlikely to pay off even in the short run. Perhaps that’s the reason why the Obama administration is resisting nationalization.