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"Semi-nationalization" is out and "nationalization" appears to be in

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What else would you expect from Republican-style economics? After decades of telling everyone about the benefits of industry self-regulation they carried it to the extreme and both the GOP and industry got what they wanted. Of course it was going to fail but the bumbling fools all thought that their cute experiment would bring benefits, which it did. The problem was that only a few benefited and the rest are stuck with the tab as we are at the beginning of a new banking phase that is going to take years - a decade or more, perhaps - to correct. From the quietness of the Republicans you might never know this was the cornerstone of their economic policy until very recently. Thanks to them, bring on the socialism and don't be shy with the heaping servings.

Last fall, as Federal Reserve and Treasury Department officials rode to the rescue of one financial institution after another, they took great pains to avoid doing anything that smacked of nationalizing banks.

They may no longer have that luxury. With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.

And the new ground rules laid down by Mr. Obama’s top economic advisers for the second half of the $700 billion bailout fund, as explained in a letter submitted to Congress on Thursday, call for the government to play an increasing role in the major activities of the banks, from the dividends they pay to shareholders to the amount they can pay executives.

“We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We are going to go back to a time when the government controlled the banking system.”

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