So it's worthy of note that today he penned an op-ed in the Washington Post recommending that Geithner go ahead and nationalize the insolvent banks (aka, "the Swedish Plan"):
Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:
First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.
Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.
Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.
So, to be clear, he's not talking about permanent nationalization of the banks, nor of the entire financial sector, but just the insolvent banks, and just long enough to spin them back off in a viable format.
I can see why the financial sector (and Goldman Sachs alum Paulson) resisted this so long: it will wipe out the existing shareholders, and that's a big big hit to the captains of the universe set on Wall Street. But, as Atrios (who, BTW has a PhD in economics) says, it's time to stop pretending that all these banks with negative equity are actually solvent.
Ammunition and canned goods, I say!