by Frank James
One of the biggest knocks on the Bush Administration's $700 billion bailout/rescue plan was that buying up toxic assets wouldn't do a lot to put cash in banks' coffers.
Many an expert said a better approach would be to inject U.S. taxpayer dollars directly into banks and getting some ownership in the form of preferred shares in return.
The banks didn't like this idea because it would mean they would have Uncle Sam as a partner which could throw its considerable weight around around. That would obviously be a pain in the neck for any free-wheeling businessman.
Conservatives didn't like the idea because it would mean government ownership of private enterprises, specifically banks. It smacked of socialism, some said and was too reminiscent of the Fannie Mae, Freddie Mac situations. Before federal officials took them over, those companies were quasi-private but with federal government guarantees behind them business practices which many critics believe contributed to the current financial crisis.
Anyway, things move quickly in Washington these days and now it appears the Bush Administration has really warmed to the idea of buying into banks after all.
Here's the exchange between reporters and White House Press Secretary Dana Perino today.
Q Thanks. Does the idea of the federal government taking a part ownership in a number of U.S. banks fit with the president's philosophy of free enterprise?
MS. PERINO: As the president has said, the radical and bold, aggressive steps that we are taking on the economy are not ones that were part of his natural instincts. But when presented with the evidence that the financial crisis about to hit the United States would affect every single American up and down the economic food chain, this president decided that it was important that the government take robust action.
That's why we worked with Congress to establish the rescue package.
Part of that package includes a broad range of authorities for the Treasury secretary. What you're referring to, I believe, is capital injections that would actually be investing in banks but not taking them over.
Q Not taking them over, but doesn't this idea envision that the government would have part ownership in a number of banks?
MS. PERINO: It would include an equity stake, yes.
Q And how far along is that, that idea?
MS. PERINO: I would refer you to the Treasury Department for that. But that is a part of the range of authorities that they were given. And this is a dynamic situation.
We still have a volatile stock market. And Secretary Paulson is looking at all the different tools, to figure out which ones should be used at what time and how robustly and how much money to put into each.
He said it's going to take a little bit of time though as they implement these, the rules and regulations that Neel Kashkari is now involved in. So let me refer you over there on specifics.
Q That's an idea that the president would be okay with.
MS. PERINO: It was a part of the rescue package that the president supported. And it gives the Treasury secretary a range of possibilities. And investing in banks directly was one of those authorities. And Secretary, Secretary Paulson can use that authority as he sees fit.
Q But given the fact that the markets have not reacted positively so far, or at least not very, wouldn't the president like to see that kind of authority used sooner than later?
MS. PERINO: One of the things that the president wants is to make sure that these new authorities are used in the most effective and efficient way possible. They are moving at lightning speed, for government-type work, in trying to establish how quickly people can get in those positions, so that they can work on the reverse auctions that were also a part of the authority.
This -- these capital injections are something that Secretary Paulson is actively considering. But I'd have to refer you to him as to when he thinks he'd be able to make the first move.
Q And the president -- (off mike) -- the president doesn't object to this, in spite of his free-market stance.
MS. PERINO: As I -- the president's natural instincts, when first presented with these issues, was not to have government involvement. But when he realized that it wasn't just a few executives on Wall Street who were going to lose their shirts, but it was possibly everyone in American and now, if you look around the world, everybody's suffering, the president said the government has the tools and the ability to be able to step in and stem this crisis. And there was no way he was going to stand by and let everyone be hurt by the bad decisions of a few.
It should be noted that the British have just done this themselves in an effort too deal with their part of the global financial crisis. And this was done in Sweden too.
Comments
Get out the administration's neck braces. The whiplash from the precipitous change in direction from capitalism to socialism is bound to be painful,
Posted by: Kenneth Janowski | October 9, 2008 2:00 PM
This situation is painful indeed, but the party in the most pain would be the ones who supported the bad loans with all their little hearts. The American will be better served by someone in office who will clean this up...NOT ACORN PAL OBAMA WHO GOT US HERE!!!
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Posted by: A crisis calls for change, CHANGE FROM THOSE WHO INSTIGATED IT | October 9, 2008 2:23 PM
Most local and regional banks are alright. Investment banks and the large regional banks that were part of the sub prime mortgage providers and buyers are the ones in trouble. We should be very selective in buying the best and letting the rest go under. With no bubble to finance, there are too many of them anyway. The selected banks could take over the assets and liabilities of the weak.
Posted by: c. perry | October 9, 2008 2:56 PM
Finally, a smart move from the administration.
It could have been done sooner, but W's natural instincts just kept getting in the way.
Posted by: johnf | October 9, 2008 3:35 PM
Here's a great explanation:
http://www.unclejayexplains.com/2008/10/05/uncle-jay-explains-the-news-oct-6-2008/
: )
Posted by: lochnessmonster | October 9, 2008 3:54 PM
Where are all of those " commie, socialists and redistributers " name-callers now ?? Why aren't they calling President Bush and his underlings those names !!? Oh, no, they are true capitalists!! Sure, they are and I have a mortgage, I want to sell you !! What a crock II All of that name-calling is what the Bush-McCain Republicans try to do, so often, the " smear and fear " campaign !! Well, it's floating like a lead balloon and it's sinking, almost as fast, as our economy !! There goes another 500 points from our stock market, today !! When do you think those Wall Streeters will start to act in our best interests, instead of theirs ?? Maybe, when they hear, we will buy up all of their debt !! Then, watch the stock market hit the roof, meanwhile our Treasury is empty and our Government is busted. Than, will someone speak of people going to jail and no bail out !! Man, are those Bush-McCain Republicans some financial wizards, or what !!??
SUPPORT OUR TROOPS, BRING THEM HOME, ALIVE AND WHOLE. NOW.
Posted by: Don Fitzgerald, Chicago | October 9, 2008 4:03 PM
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. It's so frustrating when the questions are not answered, and they are skipped in the answers that our government is giving us. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our 'childhood money messages' and how the best approach to stability in today's market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
Posted by: Lacey | October 9, 2008 4:37 PM
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. It's so frustrating when the questions are not answered, and they are skipped in the answers that our government is giving us. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our 'childhood money messages' and how the best approach to stability in today's market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
Posted by: Lacey | October 9, 2008 4:39 PM
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. It's so frustrating when the questions are not answered, and they are skipped in the answers that our government is giving us. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our 'childhood money messages' and how the best approach to stability in today's market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
Posted by: Lacey | October 9, 2008 4:48 PM
Comrade Bush!
http://www.boppoll.com
Pick the candidate you like the least and bop away your frustrations. How much further can the DOW fall?
Posted by: Resign Bush! | October 9, 2008 5:10 PM
My god. Our children and their children are gonna read the blogs about 2008 and nary a handful of comments can be found discussing the frightening economic meltdown, but they'll find that right wingers sure did think it was important to waste discussions about Nancy Pelosi's plane, Al Gore's home/office, Gay marriage, abortion, what some dude did when Obama was 8 years old, Obama's middle name, Obama's birth certificate, Obama's wifes successful career, etc., etc.
Posted by: mark marx | October 9, 2008 5:16 PM
"How much further can the DOW fall?
Posted by: Resign Bush! | October 9, 2008 5:10 PM"
-
Unfortunately, to zero...
Posted by: C.Morris | October 9, 2008 9:10 PM
"How much further can the DOW fall?
Posted by: Resign Bush! | October 9, 2008 5:10 PM"
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Unfortunately, to zero...
Posted by: C.Morris | October 9, 2008 9:10 PM
I don't know, Mr. Morris, but my 401k is now a 101k.
Posted by: dt | October 9, 2008 9:32 PM