October 12, 2008
White House Overhauling Rescue Plan
By EDMUND L. ANDREWS and MARK LANDLER
WASHINGTON — As international leaders gathered here on Saturday to grapple with the global financial crisis, the Bush administration embarked on an overhaul of its own strategy for rescuing the foundering financial system.
Two weeks after persuading Congress to let it spend $700 billion to buy distressed securities tied to mortgages, the Bush administration has put that idea aside in favor of a new approach that would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry.
As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.
Actually, over 9,000 independent small banks nationwide are doing quite nicely, have lost no money, haven't much at risk and are benefiting from an in-pouring of deposits.
For the most part, those deposits are banked at the chagrin of banks that have been eaten by banks that were eaten by banks in a feeding-frenzy that followed widespread deregulation.
Some local bankers (at least 9,000 of them) decided to forego the heady and occasionally dizzying ponzi scheme that became par for the course at Bank of America, Citigroup, Wells Fargo and J.P.Morgan Chase. They made local loans and provided local mortgages, just as they had for sometimes a hundred years or more.
Not to say the big banks may not shit the bed and bring down financial ruin, but to claim there is a liquidity problem across the industry is to bay at the moon. Probable cause for the lack of trust in (bank to bank) lending is traceable to the deep mistrust in just exactly whose bacon is going to be saved. Whole classes of stockholders are being wiped out, while whole other classes are being bailed out. The only criteria seems to be size.
It's not what ya know, it's who ya know.
To big to fail seems only to apply to those with direct connection to Henry Paulson and that's a very dicey position for a Secretary of the Treasury to occupy. Goldman Sachs, where Paulson was CEO before being tapped by Bush, will survive just fine. J.P. Morgan Chase (to whom Paulson engineered the sale of Bear Stearns for almost nothing) will come out domnant. In order to assure a $9 billion Mitsubishi investment in Morgan Stanley, our government guaranteed (with a Paulson blessing) MS would not be allowed to fail.
A lot going on to save the big hitters who dreamed up the big schemes that turned into big liabilities and threaten big crash.
Meanwhile, out there in the boondocks, where it's popular to give substantial lip-service to saving Main Street before Wall Street--most of those in the saving-business couldn't find Main Street with a dashboard GPS.
Injecting capital is a much nicer term than covering losses, particularly when they are losses within that rarefied community where capital is still being taxed at half your and my rate. Henry Paulson is perfectly willing to let your 401-K get flushed down the toilet and John McCain will tell you to your face he's going to cut your already laughably pitiful Social Security.
Bend over, Henry, George and John, so I can show you where I'd love to inject some capital. Now, just try to hold it until we take the X-rays.