Basically the new plan is to allow banks (aka "firms") to force government shares into common stock at the whim of the bank.  This is sorta what often happens in a bankruptcy proceeding as part of a deal, debt holders (some creditors) take a haircut and get some common stock in exchange for giving up their bonds.  This is a terrible plan for taxpayers.  And what about those common stock warrants we're supposed to have too?

Not only do we lose the dividends and take on more risk, but we are demoted to LESS THAN current bank bondholders in seniority (while I believe we are now senior or super senior).  Oh sure, the government gets voting(?) common stock, but so what?  If a bank cannot pay back the rather measly dividend in full on a timely basis, we might let them defer dividend payments or pay dividends in common stock, but convert the principal?  No way.  "Just say No"

If such a scheme were going to work, it should require all holders of bank debt to take the same deal, and BEFORE the TARP stock is turned into common stock.  Let all bond holders and any other preferred stock holders etc.  take their haircuts before the government takes its haircut.  And why the heck make it at the whim of the company??????????????????

We are not here to make this easy for Citi or its creditors, are we?   This plan stinks.  If banks cannot pay dividends on TARP funds, let them tell their bond holders to see the barber first.   

The Obama administration yesterday revamped the terms of its emergency aid to troubled financial firms, setting a course that could culminate with the government nationalizing some of the country's largest banks by taking a controlling ownership stake.

Administration officials said the change, which allows banks to repay the government with common stock rather than cash, is intended to give banks more capital to withstand a continued deterioration of the economy, and not to nationalize the banking system.

...       -- WaPo