Nationalizing Banks Looks More and More Likely

Team Obama is coming closer and closer to using the N-word they've been studiously avoiding: nationalize. Already the government is the top shareholder at both Bank of America and Citigroup, and with both banks in freefall, many think buying the rest is the only option. “I would guess that sometime in the next few weeks, President Obama and Tim Geithner will come out and say, ‘It’s much worse than we thought,’ and just bite the bullet,” said one economist.

Nationalization would allow the government to fire management, wipe out shareholders, and start over, proponents argue. But so far Obama’s team seems reluctant. Advisers worry that political pressures would force nationalized banks to make poor decisions, or that nationalizing one bank would send shareholders screaming from others. “The nightmare scenarios are endless,” says one senior official. (More Barack Obama stories.)