TheStreet.com's Jim Cramer proposes a two-step plan for saving the banking system from spiraling into the abyss.

Somehow the gravity of this spiraling banking situation is not getting through to the policymakers, particularly Timothy Geithner, the Treasury Secretary. So in the interests of advancing the debate we need to consider how the government could get in control of the banking system without actually taking control of the banking companies.

Right now the short-sellers, those who want the banking system to fail, are destroying the common stocks of the banks through relentless short selling. On many recent days, roughly half of the overall selling of major banks' shares has consisted of common short sales plus the short sales that spring from the ProShares UltraShort Financials (NYSE: SKF) (Cramer's Take), the weapon of choice for magnifying a small amount of capital to wreck short-side havoc on the stocks. These sales are legal, having been sanctioned by a Securities and Exchange Commission that has, unwittingly, been in league with those who need to destroy the banks in order to profit from the common stocks' demise.

It's not often that I urge readers to listen to a radio debate -- but there's a first time for everything. The reason for my recommendation is that the government could soon nationalize our banks -- something that has never really happened in our history. And I think you should consider listening to this radio debate yesterday on KCRW's To the Point with Warren Olney involving a former International Monetary Fund Chief Economist, a reporter from the Washington Post, a blogger from Portfolio, and yours truly discussing the pros and cons of nationalizing the banks.

It's not precisely clear what it means to nationalize our banks. In general, it means that the government takes control of the banks and runs them. In many cases, such as Bank of America (NYSE: BAC) and Citigroup (NYSE: C), the U.S. is already the largest shareholder thanks to the $45 billion each we invested in Bank of America and Citi. In fact, these investments exceed the value of their publicly-traded common shares -- which are valued at 81% and 38% of that investment, respectively -- Bank of America ($36.5 billion) and Citi ($17 billion).

This highlights one of the negatives of nationalization -- common shareholders who are among the innocent (and often ridiculed) victims of managements' poor decisions get wiped out. In theory, the board of directors is supposed to protect the interests of the shareholders. But in the case of the banking industry, they made sure that the executives and "top producers" got enormous bonuses by letting them take on risks that put the financial system at risk -- creating a $2.2 trillion capital shortfall. While my fellow radio debaters argued for nationalization, I argued against it.