Paul Krugman explains why he thinks going for a nationalization plan wouldn’t have worked as legislative strategy:
Maybe such a plan would have passed Congress; and maybe, just maybe Bush would have signed on; Paulson is certainly desperate for a deal.
But such a plan would have had next to no Republican votes — and the Republicans would have demagogued against it full tilt. And the Democratic leadership cannot, cannot, be seen to have sole ownership of this stuff.
So that, I think, is why it had to be done this way. I don’t like it, and I don’t like the plan, but I see the constraints under which Dodd, Frank, Pelosi, and Reid were operating.
This is what most informed observers think, so perhaps the informed observers are right. But it seems to me that if a rescue is really as necessary as informed observers think, then why shouldn’t the GOP’s friends in the business community have forced them to go along? Financial services firms might have been strongly opposed to a Swedish-style scheme, but most companies (of course) aren’t financial services firms for them the strong interest is just in having something done rather than nothing. At the end of the day, I think the Democrats had the strongest hand and just blinked at the thought of going “all-in” with it. Arguable that was the responsible thing to do. But on another level, you really can’t ever get anything done in the American legislative process if you’re not willing to engage in a little brinksmanship and I’m not sure this mentality bodes well for the prospects of health care reform or whatever.