Wrong Word, Right Policy
The word “nationalization” is frightening but government/taxpayer ownership is not a bad thing and it’s better than lending them the money and not being a part of their board of directors as a major share holder. Also, the stock owners of the bank will take a hair-cut but not lose everything. Also, it's the only way for a bank with huge liabilities in Credit Default Swaps that cover a bond in a bankrupt bank to be saved from that liability. This is also the only way to help the largest banks (not consumer banks) to assume the risk of lending to the banks who are exposed to CDS payouts.
The Swedish solution although not completely applicable to our situation, as Obama mentioned recently, does show that government ownership in a bank is not necessarily a bad thing. Below are two articles explaining what the Swedes did.
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