UPDATE: This is another re-post given the huge bailout just administered to AIG.

I am coming out in favor of nationalization in the United States. The efforts to fix the banking system to date have failed. As a result, America is still threatened by the menace of systemic risk. In my view, this risk can only be diminished significantly by ‘pre-privatizing’ large, bankrupt institutions. I am talking about temporary nationalization of a few institutions rather than a wholesale longer-term government ownership of the banking sector. I will often use the word ‘pre-privatization’ because the word nationalization conjures up a Hugo Chavez-style asset confiscation which I believe is not accurate and clouds the picture.

Through the pre-privatization of large institutions which are effectively insolvent, trust will be restored, asset prices will find a natural equilibrium level and prudent lending can commence once again. By resisting pre-privatization in any and all forms, the Obama Administration is setting itself up for failure. In that scenario, President Obama might end up looking a lot more like Herbert Hoover than Franklin Roosevelt in American history books.

Everybody is talking about nationalization. The latest trigger is the Citi discussions with the U.S. government to convert taxpayers’ preferred shares into common equity.

Below are a few Bloomberg video clips from just this morning where experts including Marc Faber, Peter Hahn and Bloomberg’s Tom Keene talk about nationalization. It is a very controversial issue. Hopefully, these clips will give you different viewpoints on the subject.

This news is just in from the Wall Street Journal. Obviously, all of the activity we have seen with Citi’s foreign subsidiaries of late has been in preparation for sale or nationalization. I expect this to be the big news when markets open tomorrow. Note: this will mean massive dilution for shareholders, so [...]

Naked Capitalism’s Yves Smith was on Fast Money at CNBC yesterday. She made a number of good points regarding the discussion on nationalization. One that particularly resonated with me was her assertion that the United States is nationalizing one, two or three banks every Friday through the FDIC (see list here).

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Meredith Whitney, the well-known former Oppenheimer analyst had some interesting words to say on CNBC about the banking sector, nationalization, dividends and Citigroup. Take a look.

I watched the proceedings of the UK Treasury Committee with HBOS and RBS this morning on Bloomberg UK TV and it was a dismal sight. It had the feel of the Nuremburg trials, honestly. The clip below doesn’t do justice to how tense the atmosphere was.

I will say this: these men from HBOS and RBS ran very aggressive organizations, piling in to all manner of risk at the top of the market. While they dissemble and prevaricate, it is plainly obvious that they did not see the risks in their actions, nor did they want to.

The Irish government scrapped a planned recapitalization of Anglo Irish Bank and moved straight to full nationalization. While some may view this as a necessary move to shore up a troubled institution, I see this as ominous news because the Irish banking system is systemically weak and subject to a potential collapse along the lines of Iceland.

This news of German goverment capital infusions at Commerzbank comes from the Frankfurter Allgemeine Zeitung in Germany. You will recall that Commerzbank was the winner in the bid to buy Dresdner Bank just a few months ago. However, this merger cannt proceed without a capital infusion from the government.

UPDATE: 9:30 AM ET: This post has been updated to reflect the events surrounding Fortis.
On Friday, I warned that European government officials like Peer Steinbrück of Germany should refrain from chastising the U.S. and the U.K. over problems in banking. After all, Europe is next. At the weekend, the fireworks in Europe began [...]

Update 06 Mar 2009: I am re-posting this because I am considering the view that Fannie and Freddie will be used to buy up mortgages, effectively nationalizing the U.S. Mortgage problem (see my last paragraphs). I had seen this as the likely result when the GSE were first put into conservatorship, but the Bush Administration was opposed to such an outcome. This is ever more likely now that Obama is in office.