Shares of banking stocks are dragging down the markets as investors become increasingly convinced that the banks will be nationalized, says Reuters. Investors are shunning the companies, worried that shareholders will be wiped out in a government takeover, and are fleeing to U.S. Government bonds and gold, which rose to above $1,000 an ounce.

Shares of Bank of America (BAC.N) tumbled more than 15 percent to $3.35, while Citigroup (C.N) slid more than 18 percent to $2.06. For a moment after the market open, Citi traded below $2, contributing to a 4.8 percent drop in the KBW Banks index .BKX.

“There’s a lack of confidence in the government to get us out of this and that has people sitting on their hands and not willing to buy,” said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. “There’s that fear that we nationalize banks and this market gets killed.”

Apparently, even free-market Republican types are embracing the idea of bank nationalization. Reuters says that Alan Freaking Greenspan has “joined a growing list of experts who suggest nationalization is inevitable. “

‘It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,’ Greenspan told the Financial Times in comments published on Wednesday.

‘I understand that once in a hundred years this is what you do,’ said Greenspan, a champion of free markets who is revered by many influential Republicans.

Well, #$@%.

Even Republicans may back US bank nationalization [Reuters]
US STOCKS-Bank worries sink Wall Street; Citi plunges [Reuters]
(Photo:Atwater Village Newbie)

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