Of course! Why didn't we think of that before? It's the state which should be running banks, with civil servants on the boards instead of those bonus-fixated businessmen. While we're about it, why stop at the banks? What about nationalising the supermarkets? How could we let people profit out of the public's need to avoid hunger? Look at North Korea, last of the old Marxist regimes, where food is free and plentiful – well, at least for the Dear Leader.
Actually, let's look at how marvellously the British state performs as a manager of assets for the benefit of all. Yesterday the Commons Public Accounts Committee reported how the Government had skilfully managed to increase the average salary of NHS GPs from £73,000 in 2003 to £114,000 in 2006, while – and this is the really clever bit – reducing their working hours by seven hours a week.
Then there are the London Olympics. In 2004 the Government said they would cost us £2.4bn. Seriously: they'd worked it all out, down to the last detail.Now they say: sorry, we forgot one or two teeny-tiny things. Like VAT. Like security. Like the price of steel. So now it's £9.3bn, you lucky Londoners. They really, really mean it, this time: no more increases. I don't know about you, but I'm betting on £15bn, not including the cost of snarling up London's traffic with "Zil lanes" for visiting IOC officials and their wives. Tessa Jowell, the minister responsible, likes to refer to the "legacy" that we will inherit as a result of all this spending. This term has now been seized on gratefully by the Ministry of Defence, whose continual colossal overspends on weapon systems procurement have proved that it really is possible not to learn from experience. They now refer to the hugely over budget – and possibly pointless – Eurofighter/Typhoon jet as a "Legacy project". Yes, the legacy will be in our tax bills.
These disasters are precisely what you can get when financial investment decisions are subject to considerations of the national good. We can't buy a cheaper American off-the-peg fighter jet because we want to create jobs in the EU. So don't worry if a few dozen airmen are killed by having to fly superannuated Nimrods – at least they died in the great cause of protecting the British aerospace industry from American competition.
Back to the banking industry: are people seriously suggesting that if the banks had already been under formal control by the state, everything would have been completely different? Remarkably, they are. Yesterday the Guardian's deputy city editor argued that "Banks in which governments have huge stakes must surely be slaves to government policy." What does she think they were doing over the past decade, other than the wishes of governments, on both sides of the Atlantic?
The boom in housing and the opening up of the mortgage market to sections of the population which had never previously borrowed on this scale, was actively encouraged by politicians. Gordon Brown was so convinced that this was a fool-proof path to unending economic growth, he repeatedly declared that a bust could never happen under his bespoke "tripartite" system of bank regulation. You will recall that in 1997 he took away the Bank of England's traditional role of overseer, much to the then Governor's consternation.
Now, come with me to not so sunny Iceland – where the entire national budget seems to have disappeared into a public policy-led credit vortex – and let's talk to the economist Jon Danielsson. He points out that "the governance of the Central Bank of Iceland has always been perceived to be closely tied to the central government. Currently the chairman of the board of governors is a former long-standing Prime Minister. Such a structure – choosing governors based on their political background rather than economic or financial expertise – carries with it unfortunate consequences especially visible in a financial crisis."
Then there's Russia. All of that country's bigger banks are state controlled, via government-appointed board members. So they haven't had the same problems as banks in the West, right? Wrong. They are in just as big a mess, possibly worse. President Medvedev has had to pump over $200bn into his ailing financial sector. As the New York Times drily commented yesterday: "Nationalising banks isn't an option for the Russian government. It already owns the country's largest financial institutions, and a string of smaller ones."
Finally, what of Russia's old Cold War enemy? Surely the sub-prime loan crisis, which is at the root of the credit crunch, was a classic consequence of greed in the financial markets? Yes; but it was made vastly worse by governments who wanted to make the banks an instrument of social and welfare policy.
Bill Clinton had reinforced President Carter's Community Reinvestment Act to force banks to lend more in low-income neighbourhoods, if they wanted to meet the approval of federal regulators. As I wrote here last week, Democrats – for all the best motives – put pressure on Fannie Mae and Freddie Mac, the two so-called Government Sponsored Enterprises which guarantee over half of the country's $12 trillion mortgage market, to underwrite vast numbers of sub-prime loans.
The Democrat Congressman Barney Frank, chairman of the House Financial Services Committee, fought successfully against the Bush administration's attempts to rein in improvident financing by the Government Sponsored Enterprises. In 2003 he told Congress: "I do not want the same kind of focus on safety and soundness [in the regulation of Fannie Mae and Freddie Mac] that we have in the Office of the Comptroller of the Currency and the Office of Thrift Supervision. I want to roll the dice a little bit more in this situation towards subsidised housing." We all know now what happened next – the whole house fell in.
Put in this context, we can see that forcing financial institutions to promote governments' social and political objectives is not the answer to the crisis: it was one of the prime causes.