Banks slowly nationalized?

Since TARP began in September, there has been debate about whether or not this is nationalization of the banks. Clearly, the original plan was technically a loan. However, politicians who would deny that TARP signalled movement toward socialism would, from the other side of their mouth, say that they owned a portion of institutions. (Barney Frank, on several occasions, said "we own this company in effect" (referencing AIG) ).

Yesterday, the Obama administration and the treasury indicated they would like to convert the government's preferred stock in TARP-participant banks to common stock. This is being touted as a way to allow the banks to increase lending, without committing any additional taxpayer funds.

But, as Thomas Sewell would say, "THEN WHAT?"

First, this dilutes the value of current common stock, which is why the financials and the DOW fell on Monday.

A much larger potential problem: With common stock, the government becomes a voting member of the banks. If nationalization isn't the intention, it may nonetheless be the result.