Media tycoon Rupert Murdoch may have a reputation of being a free marketeer, but last week in Beverly Hills he said the U.S. government should have nationalized the country’s biggest banks when the crisis hit.

Speaking on a panel at the annual Milken Institute Global Conference at the Beverly Hilton Hotel, Murdoch also said that more government regulation of the financial sector, however distasteful, was inevitable. In addition, he contended that government regulators were asleep at the switch until it was too late to avert the financial crisis.

Murdoch singled out Treasury Secretary Timothy Geithner for failing to do his job when he was head of the Federal Reserve’s New York branch.

“His job in New York was to make sure the big national banks were in healthy condition,” he said.

But Murdoch whose News Corp. has a major L.A. presence with its ownership of the Fox studio and television network, and online social networking service MySpace said the government should have gone further.

Looking back

“In hindsight, it might have been better to nationalize a couple of the country’s biggest banks, get in there, manage them and over three or four years, break them up and sell them off as small entities,” Murdoch said, “so we don’t have anything that’s ‘too big to fail’ in the future.”

But at this point, Murdoch believes there is a danger of government over-regulating the financial sector to compensate for the shortcomings that led to the meltdown.

Murdoch’s stance on nationalization drew fire from another panel participant, Tom McClarty, former chief of staff in the Clinton administration. He said nationalization should only be used as an absolute last resort.

Murdoch, 78, was also asked to comment on the state of the newspaper industry. The question was in response to a comment by U.S. Sen. John Kerry, D-Mass., who said that government might have to step in to save the struggling business. News Corp. owns Dow Jones & Co., publisher of the Wall Street Journal, and the New York Post.

“Look, if you want to have a free press, you can’t have Congress running it,” Murdoch said. “Nor should newspapers become a charity.”

Changing industry

He did say that the business model of the newspaper industry is changing. “It’s going to be harder to make big profits in the media, or at least the media as we know it. They say newspapers are finished. Well, yes, the old newspapers we know are in decline. But there’s still going to be a news source, a journalistic enterprise, a brand that you trust and know. You’re going to get it on your BlackBerry, your E-reader, your computer. It’s just a question of how you get paid for it.”

Other panelists on the opening day of the Milken conference addressed the most pressing question on the minds of the 3,000 attendees: When will the U.S. and global economies recover?

The consensus across several panels was that the worst of the economic downturn, which started with the “cardiac arrest” of the credit crunch Sept. 15, would be over by midyear, though there were varying opinions on when an economic recovery would take hold.

Doug Elmendorf, director of the Congressional Budget Office, said he expects the economy to stop contracting in the second half of this year, followed by growth rates of 4 percent in both 2010 and 2011. But, he said that with the nation’s total output of goods and services running at about 8 percent below potential, it will be 2012 before all the slack is taken up and any significant hiring resumes.

One corporate executive said Monday that the recovery has already begun, though in a small way.

“People are coming back into the stores and are buying things,” said Michael Miles, chief operating officer of Staples Inc. of Framingham, Mass. “They may not be spending quite as much as they were before the recession, but they are back.”

Miles said smaller companies made most of their layoffs in 2008, but more bad news is looming. “Now it’s the turn of the bigger companies. We still have some massive layoffs to go before we get to the other side.”

Miles said there were two major risks to what he sees as the nascent recovery: increased protectionist tendencies in the U.S. and countries around the globe, and the tendency of government officials to be overly pessimistic about the economy.

“If we could just stop scaring people to death that the world is going to end, consumers will come back to the stores and we will come out of this,” he said.