But one point in Newman's list stuck out at me -- that nationalization would 'vaporize' a lot of wealth.  -- TPM

It is gone already.  Nationalization would vaporize a lot of wishful thinking expectation values, not much real wealth (and at this point it is only speculators who are gambling on Citi and BAC, as your 90% notes more or less).  Borrowers took $ trillions from investors, and used that money to prop up a weak economy over the past decade or so.  Many are not paying it back.  Banks are taking the fall, whether they should or not (BAC didn't cause Merrill Lynch problems, but now it, and the US, owns them, for instance).  It's not a financial crisis except that investors leveraged at criminal levels and created slice and dice complications.  Let them live with that.

There are so many moving parts that the results of any potential actions are inherently unpredictable.

Argument from ignorance is a fallacy.  Please don't spread fallacies at TPM.  In fact, very much more is known or knowable than your words allow for.  The problem is that some people in the know want to keep their secrets, dirty or otherwise.

The biggest fear I have is that the take over of a few big banks could start a cascade effect with runs on others, though I don't have the specialized knowledge to have a good sense of how likely that is, what steps you'd take prevent it.

Again, ignorance (and fear).  Taking over banks does NOT cause a run on any banks at the consumer level.  If you're concerned about people with too much money pulling it out of non-insured deposits or selling bank bonds in a panic, regulations can be implemented to limit the size of withdrawals for a few days.  Roosevelt had a bank "holiday" back when there wasn't an FDIC.  But the point of "too much money" is that they can afford a modest haircut.

Taking over a bank might weaken other bank stock prices, or it might strengthen them.  Consider where confidence is at now.  This is not some wildly unpredictable effect, it only takes sensible good will to pull it off.  Geithner is apparently being reasonably sensible, if weak-willed.

It SHOULD kill off that bank's shareholder equity (or reduce it by an order of magnitude at least), if there is truly any left by then.  JPM got Bear Stearns for what, $2 (and got a $30B dowry too) when it was trading at about $20 the week before?  Why should bank shareholders expect any better now?  

And in my opinion, it should also wipe out (or freeze) CDO and related derivatives for almost all parties and counterparties, along with giving bank bondholders a massive haircut if the bank is in really bad shape.  

But yes, it is scary that Federal authorities continue to give in to de facto extortion and have offered to weaken the government's position in banks at giveaway prices.  Banks are not weak because of the recession, they are weak because they gambled and lost.  Further recession doesn't make good banks capitally weaker, tho' it might lead some banks to cut staff or close offices if borrowing decreases.

In re your latest Stiglitz interview, you say "And just what happens if we let these banks go bankrupt instead of continuing to prop them up with continuing bailouts?"

Again, nobody wants to "let these banks go bankrupt" -- you're muddying the waters with your shorthand.  The clear alternative is Intervention in specific cases, not passive liquidation or haphazard reorganization.

Naomi Klein described "disaster capitalism".  Now the pressure is on to try "disaster socialism", but it's currently socialism for moneyed interests not for general human interests.    We humans should resist this actively.  It is disaster capitalism in sheep's clothing, not genuine socialism (but you knew that, right?).


Zero-sum addendum - Stiglitz points out this factor.  I think he's right on, but it's a bit more complex than this.  We have to consider current value and future value.  Stockholders are generally betting on future value, but the bank must generally run with a current value cushion aka capital.  Stockholders aren't interested in the current equity they have in say Citi, it's been 90% or so washed out.  They are interested in future value.

The question is:  What are realistic projections for future value?  And:  Why should the government protect either value component?

Another addendum:   Great headline -- 

Citigroup's Clever Plan to Shaft Taxpayers Again