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.”

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