President Obama explained in an interview last night, why we are approaching this problem in a similar fashion to the way Japan approached their credit crisis:

TERRY MORAN: There are a lot of economists who look at these banks and they say all that garbage that’s in them renders them essentially insolvent. Why not just nationalize the banks?

PRESIDENT OBAMA: Well, you know, it’s interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

I have been calling for a systematic triage of the banking system since the beginning of last October when this problem began.  I firmly believe the U.S. economy would be fully in the recovery phase by now had we implemented the plan at that time.  Instead, we are attacking this problem in much the same way Japan did.  We are propping up bad companies and throwing money at a debt problem.

President Obama says Sweden was very different.  This is true, but only in terms of size.  Sweden had 5 large banks.  The U.S. has “thousands”, but the U.S. really only has 6 – the largest 6 account for over 85% of the market.   While our problem is larger, proportionally it is not much different at all.   Our nationalizations will simply end up being 10 times the size of Sweden’s.  Obama seems to enjoy writing big checks.   This is the perfect time.

As for the negativity surrounding the nationalization idea – I find this foolish.  This is like the football player who breaks his leg, but refuses to take himself out of the game because it’s not “manly”.  No one cares about your appearance when the obvious answer is sitting in front of you.  We have already nationalized banks here.  This idea that the U.S. is entirely capitalist and free market is long gone.  Was Obama awake for the whole Fannie, Freddie and AIG debacle?  The U.S. government effectively owns those companies.  Does he know that we nationalized banks during the S&L crisis?  But now, for some reason, the American ego is keeping us from nationalizing B of A and Citi – even though everyone knows they are technically insolvent.

It’s time to cut to the chase.  We risk a very long and protracted L-shaped recession if we allow these problems to linger.  It’s time to fix the banking sector once and for all.  If that involves a few more nationalizations then so be it.