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[AnderL]

its been a symbiotic relationship for hundreds of years.

ever since the banking industry evolved the use of certificates in place of stored gold. They leveraged their own stores of gold but also the stores of their clients. This over leveraging helped expand the economies as people would trade the certificates and the towns boom with all the new wealth and in turn the bankers would get rich as well. But they got rich faster creating distrust in the public. This would cause bank runs and a deleveraging which would contract the economy.

bankers needed a way of keeping the distrust low and that is when currencies were nationalized. central currencies was a way of diversifying risk so that you didn't have to worry which banker was corrupt or overleveraged and which ones weren't.

Bank runs happened but were fewer and far between. The more regulated the banking system became the more nationalized it was. When they figured out how to fiat currencies could operate and prevent bank runs and further resorting trust in the system it was adopted by almost everyone.

The problem is that bank runs were a natural part of the economic flow and are required to reestablish trust. Just because you keep your diamonds in a safe deposit box doesn't mean you don't go and check that they are there from time to time. That peak every now and then reaffirms that trust and strength in the institution. Because the banking system overleveraged and wipe out a lot of money and is still not transparent about their books AND on top of that they want to nationalize their toxic debt distrust is gone way beyond making sure they didn't steal the money. We caught them being too excessive. Taking on too much risk. As a result there is distrust in the banking system and now with the nation going along with the bailout distrust in the country to manage it.

Nationalizing the distressed companies would be a form of punishment that the citizens want to see and the hanging corpses of those failed banks would be a stark reminder to future banks that try to take on too much risk. At least for a few decades. bernanke and Paulson might be good at markets and finance but they are pretty pathetic when it comes to the social dynamic.