How Do We Get Banks Lending Again?

handshake; thinkpanama via Flickr

Question: Given our collective financial plight and our need for credit to survive, how do we get banks to be banks again (read: lend)? Can it be legislated – and if not, how can we surmount our impasse?

Paul Solman: If the government nationalizes (or, as I prefer to call it, Scandanavianizes), it can do darn near anything it wants with the banks it runs, lend to anyone at whatever rates. But be careful what you wish for. If the borrowers go bust, you the taxpayer (and I your fellow bank-owner) will be covering the shortfall. No different than now, it would seem. But might not government-owned banks be under extra pressure to lend to politically sensitive (or politically powerful) supplicants?