Is the best government policy with respect to failing banks more TARP money, nationalization, receivership, bankruptcy, creating sound new banks to compete with them, doing nothing, or something else?

David Warsh has a good summary of some options being discussed.

How's the US banking crisis going to end? Nouriel Roubini, of New York University, has taken the lead in urging the Swedish solution, namely government receivership: take 'em over, clean 'em up and sell 'em back to the private sector, preferably in pieces. Others, including Chris Whalen, of Institutional Risk Manager, argue that bankruptcy, like Lehman Brothers, is the best procedure. Kill 'em all and let the Bankruptcy Court of the Southern District of New York sort 'em out.

Former Federal Reserve chairman Alan Greenspan and Sen. Sen. Lindsey Graham of South Carolina went out of their way last week to signal to their fellow Republicans that government receivership must be an option. "You should not get hung up on a word [nationalization]," Lindsey told the Financial Times.

Meanwhile, Citibank and Bank of America are fighting tooth and nail to preserve their hegemony. Indeed, Citibank wants more taxpayer money.

How about this instead?  Capitalize half a dozen start-up wholesale banks with government money – call them Hamilton, Jefferson, Franklin, Madison, Adams and Washington. Get them borrowing and lending freely, purchasing assets from legacy banks, and then, equally swiftly, sell them off – privatize them.

Click here to read the rest of his post.

Update on Monday, March 2, 2009 at 11:20AM by Skeptic

Paul Krugman, Tim Duy, James Kwak, and even James Baker make the point here that ideological aversion to the word "nationalization" is blocking the best options.