"That could never happen"

Five weeks ago I wrote a post about the financial instability scenario planning exercise I participated in back in March, where we thought through the various ways that the mountain of interlocking debts might shake out. As I mentioned then, we talked for a whole afternoon until we came to the conclusion that the money center banks themselves, the epicenters of the modern financial system, might eventually come under threat and require nationalization. "Nationalize the banking system?" asked one of my savviest and most jaundiced colleagues. "That could never happen."

Guess what, Felix Salmon thinks that just such an eventuality is right around the corner:

Citi might well turn out to be Hank Paulson's largest and biggest headache. There's no one he can sell it to -- it's far too big already. Which means that Paulson's only real option, if things deteriorate much further from here, is nationalization. Bits of it could be sold, at a price -- the retail bank to Santander, perhaps; other bits to JP Morgan or Goldman Sachs -- but the losses to the taxpayer would be enormous, and the disruption associated with breaking Citi up and then trying to integrate the pieces in the middle of a major financial crisis would likely be devastating to the economy.

The fun has just begun.