Josh has implicitly raised the question that I asked last week:  why doesn't the US use this opportunity to set up a government-owned central bank?  TTarleton replied to my post with the notion that the Federal Reserve is our central bank.  Although the Reserve shares a lot of the same functions as government-owned central banks, it is not the same kind of entity as the central banks in most developed countries.  The Reserve is a system of privately owned banks with a board of people from those banks. 

A central bank that is government-owned (like the Bank of Canada) regulates private banks, regulates the money supply, and has such large liquid assets at its command that it can intervene directly.  The Fed needs an Act of Congress (TARP anyone?) to take the kind of action that the Royal Bank took. 

The market ideology of the US has mitigated against such banks.  The Fed was set up as a kind of compromise between those who wanted a government-owned bank and those who did not.  Again, it does serve many of the same functions.  But because the people running the government now (and under Obama) are conservatives market types, it is unlikely that they will seize this opportunity.

And it is an opportunity that is worth talking about.  Better (not necessarily more, but smarter) regulation, nimbler response, more revenue for taxpayers, and above all, greater stability in the market.  Here's one example I've heard:  if the US government had a central bank--with all the assets and liquidity that go with it--then if short sellers were ganging up on an otherwise sound company to drive its stock down, the bank could intervene and buy such massive quantities of stock that the shortsellers would not be able to destroy the company.  Currently the market is not reflecting the true value of many of the companies on the exchange--this is not due solely to the exotic securitization that led to the mortgage finance collapse but also to the abilty of heavily capitalized hedge funds to throw their weight around regardless of underlying fundamentals.  Only a government-owned bank would have the ability and the incentive to offset these destabilizing efforts.

Of course, free-market ideologues will consider such interventions to be anathema.  Even Josh seems to think (reflexively) that government ownership of banks should be short-lived (why, exactly, Josh?).  But wouldn't a central bank buying assets for the taxpayers (I don't mean Treasuries but other banks, buying stocks in companies, etc.)  be better than simply throwing taxpayer money at banks in the hopes that they will start lending again (and when they don't, throwing more money at them)? 

I would like to hear someone like Krugman weigh in on these issues.  Thanks for bringing them up again, Josh.