The Times has done a real public service by putting this news analysis on its front page. The key quote comes from Adam Posen of the Peterson Institute:

“The case for full nationalization is far stronger now than it was a few months ago,” said Adam S. Posen, the deputy director of the Peterson Institute for International Economics. “If you don’t own the majority, you don’t get to fire the management, to wipe out the shareholders, to declare that you are just going to take the losses and start over. It’s the mistake the Japanese made in the ’90s.”

“I would guess that sometime in the next few weeks, President Obama and Tim Geithner,” he said, referring to the nominee for Treasury secretary, “will have to come out and say, ‘It’s much worse than we thought,’ and just bite the bullet.” 

That sounds mostly right to me. You can either clean up the banks now, or lose a decade of economic growth, then clean up the banks, a la Japan. And if you're going to clean up the banks, nationalization probably makes the most sense from a cost and fairness standpoint.

I'm pretty sure Geithner and Larry Summers agree with the former. I think they're less keen on the latter. But, if I had to guess, I'd say the logic of nationalization will win out in the end. (If for no other reason than it's not clear that the dollar won't collapse if we spend $3-$4 trillion of federal money cleaning up the banks--that is, what it'll take if we don't split the costs with their shareholders...)

--Noam Scheiber