Own The Upside

Sebastian Mallaby comes out in favor of nationalization:

Paulson made clear last night that he favors a minority stake. But from a purely financial perspective, it would be better to buy the whole caboodle. If the government is going to supply a rescue, why share the upside? The worry about adding to the federal debt turns out to be a digression. Although Fannie and Freddie owe an astronomical amount, they are owed a roughly similar amount. The net effect of nationalization on the federal debt would be modest. [...]

As long as Fannie and Freddie retain their private/public form, private managers will invent reasons to grow courtesy of public assistance. The best shot at taming them is to bring them into the government. Then, once financial markets have stabilized, the government should shrink the institutions radically and spin them off in pieces, creating maximum space in the mortgage market for smaller private players.

This sounds good to me and if Mallaby can say it then why not progressive politicians, too? Meanwhile, based on his column this didn't seem to me to be where Paul Krugman was heading, but he writes in a followup "So what should be done about the GSEs? If they must be rescued, the stockholders should be cleaned out — which would, in effect, return us to the situation pre-1968."