Feds' Bank Aid Smacks of Nationalization

Washington may have no choice but to take majority stakes
By Jason Farago,  Newser Staff
Posted Jan 16, 2009 9:18 AM CST
U.S. Federal Reserve chairman Ben Bernanke delivers a speech to the London School of Economics in London, Tuesday Jan. 13, 2009.   (AP Photo/Matt Dunham)
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(Newser) – The federal government may be forced to effectively nationalize some of America's biggest banks, a notion gaining traction as Bank of America and Citigroup teeter on the brink of insolvency. While Washington has shown extreme reluctance to take ownership stakes in corporate banks, it may now have no choice, the New York Times reports. In the case of Citigroup, losses are so large that any capital injection would give the government a majority stake

The Treasury and the Fed are still hoping to wiggle out of any outright nationalization, largely via the TARP rescue program, which gives the government preferred shares and squeezes common investors. But as one Wall Street analyst points out, the die has already been cast: "There's nobody else out there to invest in them. We already own the banks."