Government may soon own bailed out banks

Call it "creeping fascism."

By transforming carbon dioxide from a harmless gas essential to plant life into a dangerous gas that must be controlled to avoid widespread disaster, the Environmental Protection Agency is inviting the Obama administration to exercise unprecedented power over the natural resource and industrial sectors of the American economy.

Next up: lasting control of banks and other financial institutions.

The New York Times reported Monday that the White House is considering a conversion of hundreds of billions of dollars in bailout money to common stock in the banks that received it. By doing so, the Times reported, the administration "can shore up the nation’s banking system without having to ask Congress for more money any time soon," according to officials.

"In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return."

The proposed move raises again a question that first came up when the Bush administration proposed the bank bailouts last year. Why doesn't the government take preferred stock in the recipient banks in exchange for the bailouts?

This would have kept the government out of direct management of the banks.

By proposing a payback in common stock, the Obama administration is demonstrating that it wants power over the banks commensurate with its stock holdings.

"...some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks," the Times acknowledges.

"The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term."

Treasury has about $135 billion left from the $700 billion commited to bank bailouts, but the Times reports that "the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults."