Nationalize Teh Banks!

Paul Krugman thinks we should nationalize our banks.

Felix Salmon thinks we should nationalize our banks.

Willem Buiter thinks we should nationalize our banks.

Their reasoning is sound. The only alternatives to nationalizing the banks are A) letting banks fail, which didn't work so well with Lehman, and B) writing a blank check to bankers, which amounts to nationalization minus the oversight.

So why haven't we nationalized our banks?

Ideology. Nationalization would shake people's faith that market capitalism, unencumbered by government intervention, is the best of all economic systems. It would change the conventional wisdom for decades to come, and usher in an era in which the "mixed economy" is the ideal. Economists will start having to think about the government again, and the government will lose its ability to get away with tax cuts and deregulation as substitutes for effective economic policymaking (to be honest, the latter has already happened). In other words, a scary new world.

Better, in the minds of those who have spent their careers defending and praising the conventional wisdom, to just hold our noses and write the banks a giant check. Sure, it wouldn't be the best thing to do for our economy, but it would allow us to continue to sleep soundly in the warm comfortable embrace of "free-market" know-nothing-ism.