Economy needs a bigger stimulus

The leading economists have noted that the U.S. economic trajectory looks an awful lot like Japan in the 1990s, a time called "The Lost Decade."  Poor economic performance created a spiral of deflation and recession.  The Japanese stock index is still 67% off its 1989 high.

Nicholas Kristof notes that part of the problem is the attitude:

Japan also underscored that you can’t resolve a crisis when the public is more interested in punishing banks than rescuing them. That’s why I suggested tarring and feathering a group of prominent bankers. Populist rage then would be satisfied, and we could get on with reviving the banks.

He's kidding (I think), but he offers these thoughts:

Tom Peters, a management expert, suggests capping the pay of C.E.O.’s receiving bailouts at that of a four-star general. As for the concern that the executives would quit, who cares? Mr. Peters writes that if all the top executives of the Fortune 500 companies were exiled to Elba, “performance of their companies would not on average deteriorate.”

As Representative Barney Frank asked the bankers testifying on the Capitol Hill dunk-tank on Wednesday about their bonuses: “Why do you need to be bribed to have your interests aligned with the people who are paying your salary?”

More to the point, Kristof notes that we give away $20 billion in tax breaks to corporations, subsidizing inflated executive paychecks.  That's dumb - no wonder Americans don't care much for a bailout.

The evidence suggests that the best way to clean house is nationalize the banks.  Sound socialist?  In a good economy, a healthy bank will buy a failing one, take ownership, and clean house.  Problem is, there are no healthy banks, at least not of the size to save the four biggest U.S. banks, in need of $450 billion.

It's time for some market action, led by government.  Citizens become the shareholders, we clean house, and then sell the shares when the bank recovers (likely recovering most of the government's investment).  Why is this so bad?