It depends on what "nationalization" means.

Greg Mankiw provides a rational look at what "nationalization" of banks means. True nationalization of our banking system would be a disaster. As Mankiw recognizes, this would lead to the government deciding who is deserving of credit and what projects deserve financing. This would lead to "crony capitalism, where the politically connected get the goodies, and economic stagnation awaits the rest of us."

However, temporary government financing that assists in the reorganization of insolvent banks could restore confidence in the solvency of banking institutions. Some might stimatize this as a "nationalization" of banks. So long as the government gets in and out as quickly as possible, nationalization should not be the term used to describe the process.

The real problem seems to be a lack of certainty as to the value of the many subprime loans. This makes it difficult to know how to value present shares in any reorganization. Mankiw describes this issue: "The government cannot blithely walk into banks and tell them they are insolvent when the banks are saying (pretending? hoping? praying?) otherwise."

Banks and regulators in complete good faith may not know the value of some of the subprime loans and their impact on the solvency of the bank. The key seems to be to find a way to defer final valuation of the assets until they can be determined more accurately while allowing for continuing operations as though there were no question as to the value of the assets.

Government participation in providing guarantees or capital to banks until assets can be reasonably evaluated seems to be the answer. That participation must remain temporary only until a proper reorganization can occur.