Krugman Financial Rescue Plan: 'Partial and Temporary Nationalization'

It's the kind of socialist attitude that would make Venezuelan dictator Hugo Chávez proud. Unfortunately, it's coming from a New York Times columnist making recommendations for the U.S. financial system.

Times' columnist Paul Krugman appeared on MSNBC's Oct. 6 "Rachel Maddow Show" and made the prediction that the federal government would have to take over the American financial system after declaring the bailout legislation signed by President George W. Bush on Oct. 3 as a failure.

"[W]hat we really need is we need, well capital that the banks - we need to put money into the system," Krugman said. "And in effect, what always happens in financial crises is a partial nationalization - partial and temporary nationalization of the financial system. And, that is - you know and, I predict with almost 100-percent confidence that's how it will end, but the [Henry] Paulson Treasury wasn't willing to talk about that."

Krugman nationalization wouldn't be a seizure of the banking system, as is the case with some governments, but would involve a process of the federal government purchasing shares in exchange for the badly needed capital for the banks. 

"Something which puts money in - something in which the U.S. government is providing cash and it's taking partial ownership shares in return is the way it's going to have to go," Krugman said. "And, the question is how long before they're willing to do that? And at the rate things are going, it might not be very long."  

Krugman said he had "fantasies" of Democratic presidential nominee Sen. Barack Obama, Ill., being elected and rescuing the beleaguered financial institutions. He claimed it would have to be done immediately because the two-and-half month transition between administrations would be too long to wait to solve the crisis.

"You know, I'm having fantasies right now, that as soon as the election is over, we're going to have to have - you know, we can't wait until Jan. 20," Krugman said. "We may have to have in effect the incoming Obama team move into the Treasury and start coordinating the rescue because this is going to be a very, very bad transition period if we don't do anything until we actually have a new administration."