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Bank Nationalization Gains Ground in the US

Posted on 17 February 2009

Nationalization, long regarded in Washington as a folly of Europeans, is gaining rapid ground among US opinion-formers. Stranger still, many of those talking about federal ownership of banks are Republicans.

Lindsey Graham, a Republican senator for South Carolina, said that many of his colleagues, including John McCain, the defeated presidential candidate, agreed with his view that nationalization of some banks should be “on the table”.

Mr Graham said that people across the US accepted his argument that it was untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received.

“You should not get caught up on a word [nationalization],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.”

Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has recently moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham.

In the early 1990s, Sweden nationalized its banking sector then auctioned banks, having cleaned up their balance sheets. “In limited circumstances the Swedish model makes sense for the US,” said Mr Graham.

More at FT.com…