Bill Gross of PIMCO thinks that we oughtn't to nationalize the banks because they're just too damn big and too damn complicated. His argument (as highlighted by Clusterstock's John Carney) makes perfect sense to me:
I think Roubini, Dodd and Greenspan haven't thought this one through. The U.S. isn't Sweden, and not just because our blondes aren't au naturel. Their successful approach revolved around a handful of banks but we have 7,500, as well as many S&Ls and credit unions, which would have to be flushed into government hands. Regulators are overwhelmed as it is, and if you thought Lehman Brothers was a mistake, just standby and see what nationalizing Citi or BofA would do. Our banks remain at the heart of domestic/global financial transactions and daily clearing, while those Scandinavian banks were not. PIMCO would not dispute the need to further capitalize systemically important banks via convertible bonds held by the government, which unfortunately dilute shareholders' interests. To go further, however, and "haircut" senior debt or even existing preferred stock similar to that issued via the TARP would create an instability policymakers should not want to risk. In turn, forcing creditors to take haircuts would undermine other financial sectors such as insurance companies and credit unions. The goal of future policy should be to recapitalize lending institutions while maintaining the basic infrastructure of credit markets. Outright nationalization and haircutting of creditors will do just the opposite.
The problem is that seeing as he's a gigantic manager of bond funds, this is also the policy that will make Bill Gross best off.
This is, writ large, the problem faced by Geithner and Bernanke: the people who know the most are those with the most to lose or gain by their actions. If they do not talk to the experts, they will do something incredibly stupid through not having thought through the possible consequences. If they do talk to the experts, their ears will be filled with advice that is both plausible and self-serving. It needn't even be deliberate deception. Anyone who's ever been moderately successful at sales knows how quickly you internalize the belief in the superior virtues of whatever it is that pays your commissions.