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Martin Wolf Is Making Sense usual. Today's effort:

This [the current approach], then, is loss-socialisation in action – it guarantees a public buffer to protect creditors. This could end up giving the government a controlling shareholding in some institutions: Citigroup, for example. But, say the quibblers, this is not nationalisation.

What then are the pros and cons of this approach, compared with taking institutions over outright? Douglas Elliott of the Brookings Institution analyses this question in an intriguing paper. Part of the answer, he suggests, is that it is unclear whether banks are insolvent. If Nouriel Roubini of the Stern School in New York were to be right (as he has been hitherto), they are. If not, then they are not (see chart). Professor Roubini has suggested, for this reason, that it would be best to wait six months by when, in his view, the difficulty of distinguishing between solvent and insolvent institutions will have gone; they will all be seen to be grossly undercapitalised.

In those circumstances, the idea of “nationalisation” should be seen as a synonym for “restructuring”. Few believe banks would be best managed by?the?government indefinitely (though recent performance gives some pause). The?advantage?of nationalisation, then, is that it would allow restructuring of assets and liabilities into “good” and “bad” banks.

Incidentally, here's the Roubini idea he mentions, which sounds to me like what's going to happen:

So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."

That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

Update: Commenter roidubouloi says my blockquote makes it sound like Wolf favors procrastination. So, just to be clear, let me emphasize that Wolf believes something closer to the opposite. I included the Roubini passage to try to highlight that, but maybe it still doesn't come through. (Wolf's writing style is a little baroque, so he's not always the easiest person to blockquote.)

As I say in comments, Wolf's point seems to be that anyone who doubts the banks are insolvent should just wait six months, because by then it'll be blindingly obvious even to them. It's almost an implicit case for acting now--things won't get any better in six months, so you might as well get to it. (Though Wolf and Roubini both suggests the politics could get easier when there's consensus in six months.)

--Noam Scheiber