Inevitable investment

"I would guess that sometime in the next few weeks, President Obama and Tim Geithner will have to come out and say, 'It's much worse than we thought,' and just bite the bullet."

These were the prophetic words of Adam S. Posen, Deputy Director of the Peterson Insititute for Economics, uttered Monday in reference to the looming threat of a nationalized American banking system.

As the sum of money promised to ailing banks by the Federal Bailout continues to increase, many are forced to ask where this plan ends and with what effect on the life of the average citizen. The reality is that no one knows.

While the Obama administration has not delivered any concrete plans for nationalization this early in the game, they have not ruled out the possibility. Certainly, as the American taxpayer becomes more and more invested in the banking system they will come to expect some kind of return on that investment. Nationalization may allow that return.

But nationalization carries with it risks that cannot be ignored. Perhaps the most distressing of these is the fact that nationalization itself will be a sign to prospective investors that banks are not a healthy enough industry for their money. Put simply, the choice between investing in the banks and investing in corn futures is beginning to favor Fritos over Franklins.

In addition, people look to the government for protection, and when it is literally within the government's power to order the end of foreclosures or perform other dramatic fiduciary magic tricks, people may start making unsafe demands. Imagine pork barrel spending on a scale that contains the entire American banking infrastructure.

On the other hand, nationalization could be like Superman making a Lois Lane-basket catch off of a tall building: this may be literally the only way to save our economy.

Still, and this can't be stressed enough, nationalization would be a major blow to the existence of an American free market. In fact it could be the end of the free market; a market controlled by the government is fundamentally not free.

It is possible that this is where our history has led us and we are stuck between the proverbial rock and hard place. It is possible that nationalization is the only path available to us. But the importance of this decision cannot be stressed enough, and we can only be thankful that the gravity of the situation doesn't seem to be escaping anyone.