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The Bonus Tax And Bank Nationalization

A reader makes a great point:

If bank nationalization is in the works or were to become necessary in the near future, as so many people expect, keeping the markets calm would require confidence from the private sector that the administration's economic policies were not subject to abrupt changes.
 
This legislation might threaten that confidence, because it demonstrates a situation where mistargeted populist outrage can unexpectedly override the administration's policies. In fact, it seems to me that any nationalization plan would at least have to wait until some calm has returned to Congress and outrage over rich financial professionals isn't headlining every paper.  In that regard, I can't shake the sense that Congress is seriously restricting Geithner's options on the economy.

Agreed. The prospect of nationalization--which may well be necessary--has to give people in the financial services industry nightmares after passage of the bonus tax. One of the biggest concerns about nationalization is that, with the government involved (particularly Congress, which is most responsive to public opinion), management decisions will be made for political reasons rather than economic reasons. This clearly exacerbates that fear.

Now obviously the point of our bank bailout policies isn't to please people in the financial services industry. But it sure helps to have their cooperation--and to avoid panicking their investors, creditors, and counterparties and the financial markets generally.

--Noam Scheiber