Seamus Milne says it’s time to fully nationalize the banks. Leaving ideology aside, it’s not obvious that this is a stinkingly bad idea.
For one thing, Seamus is right that the measures taken so far have not worked. As the Bank of England says today:

Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult. The Committee noted that it was unlikely that a normal volume of lending would be restored without further measures.

The simple case for nationalizing banks is that they would be able to raise cash much more cheaply and easily than they can now; before today’s Bank Rate cut, 3 month Libor was 3.8% whilst the 3 month T-bill rate was just 1.7%. This would almost automatically allow them to increase cheap lending.

And a lot of conventional arguments against nationalization are just plain wrong.

‘Government has no expertise in managing banks’
Nor do existing bank bosses. That’s why we are in the mess we are.

‘Nationalization reduces competition’
The private sector solution to our crisis also entails a loss of competition; the Lloyds TSB-HBOS merger would never have been tolerated in normal times. And even in the best of times, competition between the banks wasn’t great.

‘Nationalization reduces innovation’
It’s innovation - all those CDOs - that got us into this mess. By contrast, the innovation that would be useful - Shiller-type insurance against macroeconomic disasters - has not occurred in part because private sector financial firms cannot appropriate the large social benefits that they would bring. Maybe public ownership would help solve this public goods problem.

‘Nationalization leads to bad deals for customers’
Few customers, however, are happy with banks today. And my personal experience - from looking for somewhere to deposit the money raised from selling my flat a few months ago - suggests that National Savings are at least as efficient as any private sector bank.

‘Nationalization would cause lending to become politicized’
It would be nice to have any lending, politically motivated or not. But any reasonable arms-length structure would address this problem. After all, the BBC is in effect nationalized but operationally independent.

So, full-scale nationalization is not a stupid idea. Better still, it might not be an expensive one. As stock markets and the economy recover, it might be possible to privatize the banks at a profit sometime in the next few years. How else is government borrowing to come down?