I have not been very opti­mistic about the chances of bank nation­al­iza­tion, but an inter­view that E.J. Dionne and others con­ducted with Obama over the week­end sug­gests that the option isn’t com­pletely off the table. That’s good news, as is the fact that he rec­og­nizes the prob­lems with a Japan-​style approach. What’s not clear is what he imag­ines the “sweet spot” between the Swedish and Japan­ese models to be:

When it came to fixing the banks, Obama acknowl­edged that “work­ing through all those bad debts is going to be really tough.” Asked about a range of choices, from Japan’s go-​slow approach to Sweden’s tem­po­rary gov­ern­ment takeover of insol­vent banks, he said:

“As you pointed out, sort of along the spec­trum there are two ways of han­dling this. There’s the Japan model — as I said, they sort of papered things over, never really bit the bullet, took their med­i­cine, and so you never got credit flow­ing the way it should have and the bad assets in their system just cor­roded the econ­omy for a long period of time.

“Sweden, in con­trast, took over their banks and took out the bad assets and then resold the good banks, the fixed banks, to pri­vate hands. And they were up and run­ning pretty soon. And as I said when I was asked about this the other day, you can make a good argu­ment for the Swedish model, except for this fact: They only had a hand­ful of banks. We’ve got thou­sands of banks. The scale, the mag­ni­tude of what we’re deal­ing with is much bigger. We’ve got global finan­cial mar­kets that are react­ing in all sorts of unpre­dictable ways. And so what we have to do is to we have to pull the Band-​Aid off so we don’t dupli­cate what hap­pened in Japan. But we’ve also got to make sure that in pulling the Band-​Aid off we don’t just start doing so much damage that things end up get­ting much, much worse. Find­ing that sweet spot is what we’ve been work­ing on for the last sev­eral weeks and what Tim Gei­th­ner is going to con­tinue to be work­ing on over the next weeks, months, prob­a­bly through the end of this year.”

When pressed on whether he was ruling out the Swedish approach, he declined to do so:

“My absolute goal is to make sure that our finan­cial system is set and that we get credit flow­ing again, that home­own­ers, small busi­nesses and large busi­nesses will get — invest and create jobs and get this econ­omy going again. I’m going to be very prac­ti­cal in terms of how to approach it. What we want to do is to make sure that we get this right on the front end. What Tim Gei­th­ner did was to pro­vide a frame­work. He is pre­sent­ing then a time­line of how this is going to roll out over the next sev­eral months: When do we start apply­ing these stress tests to the banks; open­ing up their books; making sure that every­body knows for sure exactly what’s going on in there; struc­tur­ing plans to attract pri­vate cap­i­tal to help deal with some of these weaker insti­tu­tions. Some of the smaller insti­tu­tions that don’t pose sys­temic risks, if it turns out that they’re in really, really bad shape, then we may have to reeval­u­ate how we approach some of those institutions.

“He’s also work­ing the Fed­eral Reserve Bank and the FDIC to open up lines of credit that imme­di­ately pro­vide some relief to small busi­nesses and con­sumers. There are a whole bunch of credit mar­kets, like stu­dent loans or credit cards, that are locked up right now, but actu­ally the under­ly­ing assets in these secu­ri­tized mar­kets are not that bad, so we may just have to use a vari­ety of dif­fer­ent tools to give pri­vate investors some con­fi­dence on that front.

“But here’s the bottom line: We will do what works. It is going to take time to lay out every aspect of this plan and there are going to be cer­tain aspects of any plan that was designed which will require reeval­u­a­tion and then have some exper­i­men­ta­tion — if that doesn’t work then you do some­thing else. What I’m con­fi­dent about is that the basic frame­work that we have put for­ward is the right one, and that it bal­ances a whole host of issues, includ­ing, by the way, the issue of making sure the tax­pay­ers aren’t just car­ry­ing the whole freight on this thing, and that we’re shar­ing — that insti­tu­tions on Wall Street are shar­ing the burden of clean­ing up this mess.

“We want to help because — not because I’m par­tic­u­larly happy about how Wall Street has been run­ning its busi­nesses, but because if we don’t fix the bank­ing system and the credit mar­kets, then busi­nesses can’t make pay­roll and we con­tinue to see pain among ordi­nary Amer­i­cans. On the other hand, I think that folks on Wall Street have to under­stand that these bur­dens have to be shared, and so restric­tions on exec­u­tive com­pen­sa­tion, trans­parency, making sure that share­hold­ers are more effec­tively involved, all those things we’re taking into account. And by the way, the market is not always going to like some of those deci­sions, because ide­ally what they’d like to do, they’d like to con­tinue busi­ness as usual and not pay a price for a whole bunch of really big mis­takes that were made.”