Earlier this year, I did a blog entry looking at how the Obama administration was opening the door to nationalizing banks where the US government is repaid with common stock giving it a stake in the business.

Now the New York Times reports that the US Government is now moving in this direction with plans to convert the government's existing loans to the nation's 19 biggest banks into common stock. This means the US Treasury could become the biggest shareholder in the banks.

Nationalization is not just a plan pushed by economists such as Nobel laureate Paul Krugman, Nouriel "Dr Doom" Roubini and former World Bank chief economist Joseph Stiglitz. Other high-profile proponents of nationalizing insolvent banks include ANZ chief executive Mike Smith and former US Federal Reserve chairman Alan Greenspan, who now advocates the US Government taking "temporary control" to "facilitate a swift and orderly restructuring". Greenspan, the former disciple of Ayn Rand, has switched from free market capitalism to creeping corporate socialism - anything to clean up the mess he helped create.

Still, it's a political minefield as there are potential conflicts of interest. Treasury would have to sort out the problem of looking after the broader economic interests while maximizing the value of the shares. Nonetheless, nationalization of US banks is on the cards. Only this way, it's coming through the back door.