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I’d say that now is the time to start socking some money away under your mattress. The Treasury has instituted, so far as I know, the first ever coerced government takeover of the private banking system in the history of the United States. I don’t believe that happened even during the Great Depression.
NEW YORK (Reuters) – The United States ushered in a new era in banking on Tuesday with plans to take equity stakes totaling up to $250 billion in financial institutions, an incursion into the private sector that U.S. officials called a regrettable last resort.
U.S. Treasury Secretary Henry Paulson said government ownership of big stakes in banks was “objectionable” but necessary to head off the financial crisis.
“At a time when events naturally make even the most daring investors more risk-averse, the needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Paulson said.
Now, who knows better the “needs of our economy”, a government theoretician or someone who is actually handling the stuff, looking at loan applications, and trying to make his employers and stockholders the money they expect for their investment?
The worst part of this story is that the takeover will include nine banks that are in no trouble whatsoever.
Paulson said nine banks that he described as “healthy institutions” had agreed to accept government stakes for the good of the U.S. economy — a government intervention unthinkable before the credit crisis, the worst since the 1930s Great Depression.
Paulson says they “agreed” but the real story appears much different.
President Bush was scheduled to announce the new initiatives early Tuesday after executives of the country’s biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday. Treasury Secretary Henry Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.
Early versions of the story said that Paulson reportedly “pressured” the executives of these healthy banks that did not need any government money at all to agree to the government takeover.
Does the phrase “for the good of the economy” ring any socialist bells at all?
Here’s what these healthy banks were forced into:
The U.S. Treasury will buy nonvoting preferred shares in major financial institutions, with stakes in each limited to $25 billion. Bank executives must accept standards of corporate governance and limits on their pay.
In other words, the government gets to tell the banks how they must run themselves and what they are allowed to pay their employees. Oh, but these shares aren’t voting shares, which is supposed to make us feel more secure. Then again, they don’t have to be voting shares since the government already has control of things the shareholders would normally vote on in the first place. That is a takeover, no matter how you spin it and regardless of how concerned you look on television.
Now here comes the President to make it all better.
“These measures are not intended to take over the free market but to preserve it,” U.S. President George W. Bush said.
I heard something a lot like that when I was a kid. Back then, though, it was “We had to burn the village in order to save it”. It was garbage then and its garbage now. Socalism, even a little bit and even for a short period of time (or so the government says), is not a path to better and stronger free markets. It’s a path to more socialism. President Bush is wrong and has been taking very bad advice. The solution to our problem is not more government meddling. That’s what got us into this mess.
But hey, what do I know. I’m just a guy who reads a newspaper and knows who the hell Fannie Mae and Freddie Mac are.
So, the upshot of this story is that the Secretary of the Treasury strongarmed the heads of nine entirely healthy banks into selling the US government control of their institutions for the common good.
Who could possibly think that’s socialist at all? And we know how well those socialist financial institutions have done over the years, don’t we?
Anyhow, enjoy your Glorious Capitalist Financial Institution, comrade. You’re going to see a lot more of it in the next few years.
Other Posts of Interest:
- What Does Our Government Want to Buy Next, Gambling Debts? (UPDATE: A Glimpse of Our New SecTreas?)
- How to Handle the Mortgage Mess? Do the Right Thing.
- “Wheeeeeee!”, Said the Stock Market
Category: The Economy and Your Money
