Felix Salmon spells out the case for unavoidable nationalization of banks:
“Let’s work from an ex hypothesi assumption that a certain bank — let’s call it Citigroup — is insolvent.”
“For a bank, Chapter 11 is pretty much impossible, since you’re not going to find anybody to provide debtor-in-possession financing to keep it going. Except the government. And if the government is in possession, then, hey, you’ve just nationalized the bank.
As for liquidation, that’s not an option, because Citigroup is too big to fail. Dumping Citi’s trillions of dollars of assets onto the market in a fire sale would depress asset prices worldwide so much that we’d enter a global depression, not just one in the US.”
It would be logical for the US to blackmail other countries for help, with the threat of letting another big one go down, impacting everyone. That blackmail is built into the system already, however, in the form of Treasuries.
As for nationalization, one way of reducing the size of forest fires is to limit the growth of trees. Limiting the growth of banks comes from regulation and all roads lead to it.
In all scenarios, and however it is dressed up, the US is looking at a period of partially socialized, loss making, non-free market banking. Meanwhile US tax payers still won’t get the benefits of the good types of social infrastructure, such as universal healthcare, which incidentally costs less than what we already pay. Its a pity.