Citigroup

(C) - Get Report

apparently wants to be nationalized.

The bank invited the U.S. government to

take a bigger stake

as part of a request to convert much of the Treasury's $45 billion in preferred shares into common shares, according to the

Wall Street Journal

.

What a deal. The government gives up the special dividend on the preferred shares and instead gets to take its chances on a rebounding stock price to recoup the taxpayer dollars it gave the bank.

Citi's common shares have been on such a tear lately that taxpayers are sure to get a great return on this investment. Let's see, the stock has been languishing under $2 after dropping like a lead zeppelin since September, when it was trading in the $20s. Massive dilution of the share base will certainly fix that.

Just for fun, let's see how many shares the government would get for $45 billion on the open market. I'll be generous and round the share price up to $2.50, so that's 18 billion common shares that would go into the hands of the government. Even if the government converts only half its preferred shares, it would get almost twice the number of currently outstanding shares.

No matter which way I slice this, it adds up to Citi being controlled by the government. If you thought we were heading down the path of nationalization before with all the TARP investments by the Treasury, that was nothing. This deal leaves no room for doubt.

The only way this doesn't lead to a nationalized Citi is if the government lets itself get taken on the share price. Let's pretend that we think Citi is really worth $20 a share. That would be 2.25 billion shares to cover the $45 billion or 1.125 billion if the government converts only half its preferred shares.

Since Citi currently has 5.45 billion outstanding shares, the government would end up controlling more than 17% of Citi even if it converts only half the preferred shares at a ridiculous price of $20 per common share.

Strangely, the market seems to like what it's hearing, with Citi's common shares up more than 8% recently at $2.12 and the Dow and S&P both up as well.

Do investors really think this is a good idea?

What happens when

Bank of America

(BAC) - Get Report

or

Wells Fargo

(WFC) - Get Report

or

JPMorgan Chase

(JPM) - Get Report

or any of the hundreds of other banks that received TARP funds want the same deal?

Maybe we should just merge them all into a giant government-controlled Bank of the U.S.

So much for the free market.

Hall is the editor of

TheStreet.com

. Previously, he served as deputy editor and chief innovation officer at

The Orange County Register

and as a news manager at

Bloomberg News

in Frankfurt, Amsterdam and Washington, D.C. As a reporter, he covered business and financial markets, worked in both print and television in the U.S. and Europe, and conducted in-depth investigative coverage at

The Journal-Gazette

in Fort Wayne, Ind. His work also has been published in a variety of newspapers including

The Wall Street Journal

,

The New York Times

and

International Herald Tribune

. Hall received a bachelor�s degree in journalism and political science from The Ohio State University and has taken graduate management science courses at Boston University.