After nationalization

Although the Obama administration continues to publicly insist that it's not going to nationalize the banks, the argument has essentially been won by the nationalizers. We will nationalize the big banks, in one form or another. Shareholders in those big banks will lose what little equity they have left, and the government will reorganize the banks and re-privatize them in a few years.

The debate has now shifted to a much trickier issue - namely, what to do about the banks' creditors (holders of the banks' bonds). Either we make them take some losses ("haircuts") or we don't. If we don't make them take any losses, we'll A) have to shell out a huge amount of taxpayer dollars, and B) be rewarding a bunch of people who made risky bets, and thus encouraging more risky bet-making in the future. But if we do make the banks' creditors take "haircuts," thus punishing them and saving the taxpayers some money, we risk deepening and extending the financial panic, because people will be less willing to lend to banks when they need it most (i.e. the next few years).

So it's a tough, thorny issue. I don't have the answer, and there is no consensus yet.