Matt Yglesias notes that John Makin, a scholar at the conservative American Enterprise Institute, favors nationalizing the banks, in large part because Makin fears that we are repeating the mistakes made by Japan at the beginning of its long economic clump. This is noteworthy because conservatives, fearing a government takeover of the economy, have been hostile to the idea of nationalization, or, more accurately and palatably, receivership. But as MIT's Simon Johnson has argued, the banks have already been nationalized -- only they've been nationalized in the worst possible way.   

The worst possible way to nationalize would be to assume responsibility for the liabilities of banks, at the same time as not putting in place adequate oversight and failing to ensure that the taxpayer gets any upside.  Even worse, we could install managers with a proven track record of incompetence.  Anyone who proposed such a scheme today - as we collectively kick the tires of plausible alternative approaches - would be dismissed as an ridiculous crank.

Yet it is exactly this kind of nationalization that we - or, more specifically, Hank Paulson - already did.

So the alternative that Makin and others, including Matthew Richardson and Nouriel Roubini, have sketched out is not in fact "nationalization" -- that is, an effort to seize the banks so that the federal government can control the commanding heights of the economy -- but rather, as Johnson has framed it, reprivatization.

There are a number of different approaches to how we could kick-start the banks, including a few that skip the pesky, intermediate step of nationalizing existing banks before stripping them of toxic assets. Luigi Zingales outlined one intriguing plan, which promises to cost far less than the others on offer. James Kwak identifies some of the pitfalls in two other approaches: (1) creating new "good banks" with government capital to compete with the old "bad banks" and (2) Lucian Bebchuk's public-private plan, in which multiple private-sector bid for government money to create a functioning market for toxic assets. The approaches outlined by Zingales is attractive, but might prove workable. The Richardson-Roubini approach is more straightforward, at least on paper.

But the important thing to keep in mind is that it was the TARP that enmeshed the federal government in keeping the banks afloat. There are many good, principled arguments against the first bank bailout, and I fully expect that populist conservatives will make them for years to come, as well they should. Now, however, we're living in a second-best world, and the nationalization-reprivatization actually dovetails with core conservative themes: rather than giving incumbent bankers handouts, the government would be demanding accountability.

On an only tangentially related note, the aforementioned John Makin has advocated a number of smart policy responses that clearly keep the Japanese example in mind.