Government May Begin Buying Bank Stock Within Weeks

As it is now apparent that the credit crisis has spread to the global economy and has not been contained in any way, the Bush Administration is considering an option included in the $700 billion dollar bailout package that would allow them to invest directly in banks — buying preferred stock in exchange for a “cash injection.” White House spokesperson Dana Perino said taking partial ownership of banks and other moves associated with the financial rescue plan would not be “part of [Bush’s] natural instincts,” according to the NYT, but acknowledged that the situation has gotten sufficiently dire as to warrant a change of heart.

“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.”

Ms. Perino said the “capital injections” into the banks would involve “an equity stake” for the federal government but would not amount to a takeover.

“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,” Ms. Perino said, referring to Treasury Secretary Henry M. Paulson Jr.

The plan allows the government to take an ownership stake in banks — even healthy ones. In exchange, the banks would get an injection of cash that (in theory) would strengthen their balance sheets and convince them to start lending again.

The Times also says that the recent coordinated global rate cut hasn’t seemed to help much:

Never before has the Fed issued an announcement on interest rates jointly with another central bank, let alone five other central banks, including the People’s Bank of China.

Yet the world’s markets hardly seemed comforted. Credit markets on Wednesday remained almost as stalled as the day before. Stock prices, which had plunged in Europe and Asia before the announcement, continued to plummet afterward. And stock prices in the United States went on a roller-coaster ride, at the end of which the Dow Jones industrial average was down 189 points, or 2 percent.

Even serious free-market type Republicans are starting to warm to the “cash injection” idea:

“The problem is the uncertainty that people have about doing business with banks, and banks have about doing business with each other,” said William Poole, a staunchly free-market Republican who stepped down as president of the Federal Reserve Bank of St. Louis on Aug. 31. “We need to eliminate that uncertainty as fast as we can, and one way to do that is by injecting capital directly into banks. I think it could be done very quickly.”


Administration Is Considering Cash Injections Into Banks

(Photo: Getty)

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  1. sniper21 says:

    Words offer the means to meaning, and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn’t there? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen? Who’s to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn’t be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to the now high chancellor, Henry M. Paulson . He promised you order, he promised you peace, and all he demanded in return was your silent, obedient consent.

  2. Bladefist says:

    I saw this on drudge this morning. And I just want to say, to all those who I’ve debated with in the past, I am now officially, a George Bush hater. I’ve supported him on many things, but when you attack capitalism, and conservative in a world changing way such as this, I’m done. I’m kicking him off my island.

    If McCain follows Bush’s lead, I will have to vote for independent or Obama. I cringe to say that, but I will not let my vote help socialism in this country.

    • Notsewfast says:

      @Bladefist:

      Welcome, my friend. Glad to see that you’re thinking outside party lines. You can go back to your side in a couple of years if things don’t pan out.

      Plus, Arianna Huffington is WAY better looking than Ann Coulter, so there’s that.

      • Bladefist says:

        @Secret Agent Man: Lets not get nuts. I’m still a ring wing nut job. My party left me, I didn’t leave my party perse. My issues today are the same as they were yesterday. Bush, imo, has just finally done the unforgivable. And to be honest, what he is doing, is socialism, which I have been against since day one.

      • Bladefist says:

        @Secret Agent Man: More so, not to indicate you are a socialist, but I am curious as to the liberal opinion of this? Technically speaking, this is a move to the left, and I would think that a lot of people, would be happy with this? Is the hate for Bush so fierce, you could never be happy with his plan? Or are you against this plan as well? I mean, it is more government regulation, which is definitely something liberal democrats think we all need more of.

        • Notsewfast says:

          @Bladefist:

          I think its like we agreed the other day, neither side likes this much. I don’t really associate myself too strongly with one side or the other, but my rationale lately has been that there is no ‘small government party’ anymore. What with all of the corporate welfare and homeland security, both parties want a bigger government, they just differ on which part should be bigger. I would honestly prefer that we help those in need (with limits) and try to stick to the constitution as much as possible, while leaving individuals to choose what is and isn’t wrong.

          My biggest problem with the right as of late is that it has been hijacked by the far-right who want religion to dictate laws, and I have to disagree with that based largely on my confidence in the constitution.

          In answer to your other question, the bill was a product of both parties, who all have to get re-elected at some point in the near future while simultaneously appeasing their lobbyists. I probably would oppose anything that wasn’t specifically designed to fix the economy while punishing the executives responsible as much as possible.

        • ragold says:

          @Bladefist: Let the industry fail. Create an independent (like the way the Corporation for Public Broadcasting or the Federal Reserve Board are supposed to be) lending department of the US government promoting whatever values we think a socially beneficial lending institution should have.

        • alexcassidy says:

          @Bladefist: I think it’s more the fact that even though he’s making a move to the (extreme) left, we’re not happy about it because it’s a horrible fucking idea that apparently is having worse consequences than inaction would have. That’s my .02

        • B says:

          @Bladefist: I’m a liberal, but I’m also a firm believer in the free market. A well regulated free market, that is. Anyways, I’m in favor of this plan for one reason. As a taxpayer, it’s my money that’s being given to the banks, and in exchange for that money, we’d get one of two things, either the “toxic” MBS/CDOs that are basically worthless, or a stock ownership in the bank which has considerable value. Also, by owning stock in the banks, that increases the likelihood that the executives who through incaction or action caused this mess will be losing their jobs, and that is a good thing, both from an economic standpoint and a moralistic one.

    • Tmoney02 says:

      @Bladefist: Wow only took you 7 and 3/4 years to figure it out. But I guess the important thing is you figured it out.

      • DeleteThisAccount says:

        @Bladefist: Yeah I don’t blame you… I’m a socialist at heart and this crap is beyond socialism, its beyond plutocracy…. This is probably the most direct transfer of wealth, to the wealthy, that has ever occurred in history.

        • stevejust says:

          @AngrySicilian: Not plutocracy. The word you’re looking for is kleptocracy.

          As in, we’re all being stolen from. Big time.

          Bladefist: Can I say I told you so yet? Bush ran Arbusto, Spectrum 7 and Harken Energy the same way he’s been running the country for the last 7.5 years, and he got the same results. And I’ve been telling you this has been happening for a long time now.

          There’s an old saying in Tennessee — I know it’s in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can’t get fooled again. — George W. Bush, September 17, 2002

          • Bladefist says:

            @stevejust: No you may not. Conservatism is what I preach, and it works. I’ve never preached Bush as a whole. My opinions on Bush have been per issue, until today.

            • pezhore says:

              @WolfDemon:

              Ha, I was going to mention that.

              @Bladefist:

              I’m in a similar boat Bladefist. I’m a conservative Republican through and through. It amazes me that members of Congress that call themselves Republican can vote and support bills and resolutions that directly contradict what I hold to be core conservative values. The bailout bill was the last straw for me.

              I won’t be voting this election. Mostly because I’m rather cynical and don’t believe my vote truly matters (see electoral college). Also, I *refuse* to vote for the “lesser of two evils”… why the fuck are there only two evils to choose from? Why are we as Americans only offered the choice of sucky and suckier? I’d vote for Bob Barr or perhaps even *shudder* Nader… but I’m a realist. It would take more than a majority vote across the nation for Bob Barr/Nader/Ron Paul to give them even a chance at winning the election. As the past election showed, popular vote doesn’t mean anything.

              But I’m stuck in my ways and hope against hope that somehow the country I love will come out of this crazy-state and go back to a truly free society.

      • Bladefist says:

        @Tmoney02: Don’t turn my comment into me coming out of the closet, and admitting I was wrong. Far from it. I was _okay_ with the first 7.5 years. Not ecstatic, but, happier then if Obama, or someone like Carter was in the office. But today, Bush changed, not me.

        I haven’t been proved wrong of anything. I am simply sticking to my beliefs, not party lines, as I always have.

    • crabbyman6 says:

      @Bladefist: It seems as if Bush has become so right wing he’s looped all the way around to the FAR left. :)

    • Tmoney02 says:

      @Bladefist: Sorry for being flip. I wish there was an edit button. Just curious, how do you feel about McCain’s proposal of the government buying houses/ peoples home mortgages?

      • Bladefist says:

        @Tmoney02: Well, not happy, however, I think it’s a bit interesting. It’s socialism, lets put that out in the open. However, if thats the only way to get these people who can _kinda_ afford their homes, on fixed rates, and when the market comes back, sell it back to the market, I could survive. I think it was something Obama originally thought up, and McCain perhaps stole it.

        If the fixed rate was extremely low, I would be pissed. It should be for people who are in ARMs that are out of control. If they got 3% fixed rate, I would explode.

    • WolfDemon says:

      @Bladefist:
      If McCain follows Bush’s lead, I will have to vote for independent or Obama. I cringe to say that, but I will not let my vote help socialism in this country.

      Irony

      • Bladefist says:

        @WolfDemon: We’ll have to see what McCain/Obama says to this owning stocks in banks. Obama currently is the socialist. But McCain is definitely competing with him, who can be the biggest socialist.

        • bunt says:

          @Bladefist: I’m w/ you. my views are technically conservative. but bush.. i have no idea what hes thinking.

          funny, will bush be the man that pushes the nation from bi-partisan thinking? really?

  3. lodleader says:

    As much as I hate this, I will will NEVER vote for obama.

  4. zentex says:

    interesting. So those who prefer the fall line of tinfoil headwear might say that all this is subterfuge to cover up the governments slow-paced plan to erase 300 years of freedom and turn this country into some form of Communist/Dictatorship dealy-o thingie.

    NOT that there’s anything wrong with BigBrother watching your every move AND owning the banks you put your money into…after all the money technically belongs to the govt, right?

    /sarcasm

  5. crabbyman6 says:

    This is what I’ve thought we should do ever since the bailout was proposed. I’m not for bailing them out, but it looked like it was going to happen no matter what so why go with a crappy system of buying all the bad loans and HOPING we get paid back when you can just buy up the banks flat out. I read an article about a week ago saying we could flat out buy the top 8-10 banks for $700b. Why buy just the debt when we can buy the whole bank, fix them up and sell off their individual parts or release them so as to spur competition between banks.* This would also have the advantage of dismantling some of those banks that are(were) too big to fail.

    *I am not in any way an economics person so please be at least somewhat nice.

    • Crymson_77 says:

      @crabbyman6: Not a good idea. Buying a stake, yes. Buying out and selling off the pieces would cause an economic disaster worse than what we are facing. First thing to go when that happens is people’s jobs.

      The BEST solution is to start CREATING PRODUCTS again. This service based economy could never hold a drop of water and should never have been expected to.

      • crabbyman6 says:

        @Crymson_77: Hmm, never thought of job loses. My concern was WHO would buy them, I don’t exactly want China to control our economy more than they already do.

        • Bladefist says:

          @crabbyman6: The government caused this problem. You can blame the executives, you can blame the people who bought homes they couldn’t afford. But in a freemarket, those banks would fail, and those people would have been kicked out. Problem solved.

          But, since the government backed these banks, and let people buy homes with less then 20% down, and then ignored all of the regulators who were screaming that fannie/freddie were failing, they interefered with the free market, and thus, didn’t let it work.

          Everything that is happening, you can trace it back to the government. I promise you. So, your question about having the government use the 700 billion to buy the big banks and fix them, my answer to that is:

          They are a bunch of idiots and would screw it up worse. The government screws up medicare, social security, fannie/freddie, etc etc etc. I really don’t think you want these people who haven’t spent 5 minutes in the private/public sector, coming in to fix it. You might as well hire 3 year olds

          • B says:

            @Bladefist: The government didn’t cause this problem. There’s nothing wrong with buying a house with less than 20% down, PMI is a good way to protect the banks in that case. However, there is something wrong with getting a mortgage without providing any income verification, and that was something the banks came up with all on it’s own. Not to mention the repackaging and sale of MBSs/CDOs was something done without government interference or regulation, as was rating the assets as AAA when in fact they should have been rated like junk bonds.
            As for Fannie and Freddie, they got in trouble when they started acting like banks, buying up these assets cause they were more focused on the bottom line than on sound business practices. Fannie and Freddie used to require that a loan meet very strict requirements before they would buy it on the secondary market, but as more and more money was poured into the secondary market, their standards got looser and looser. Now, granted, they were busy paying off Democrats so they could keep doing this, but it was greed, not federal regulation or interference that caused the issues.

  6. SBR249 says:

    I think it’s time for the Third Bank of the United States!

  7. MrDo says:

    but Nancy Pelosi said that if we just passed the bailout everything would be fine.

  8. mcjake says:

    This American Life did a pretty good explanation of this option in this weekends episode. I hate the idea of the govt having ownership stakes in banks. But it sounds a lot better than other options.

    [www.thisamericanlife.org]

  9. Gokuhouse says:

    Someone needs to remind me why the government with our tax dollars would need to buy stakes in healthy banks? The bailout was supposed to help the banks that were going under, not buy up healthy assets.
    *coughs* socialists *coughs*

  10. stevejust says:

    I think the headline of this story should be, “BUSH HAS NATURAL INSTINCTS?”

  11. azntg says:

    First, we have to forced to agree to a $700b gift and now, we’re in the bank nationalization business too?

    Dear lord!

    • B says:

      @azntg: If we’re going to give them $700B, I’d rather get something of value in return. And if the banks don’t want to give up their stocks, well, they don’t get any money, seems fair to me.

  12. ViperBorg says:

    So, who’s up for Canada?

  13. grumpygirl says:

    It’s a confidence issue. Would you be issuing credit if you had no idea whether or not a company’s accounting is truthful? If they don’t do something about those level 3 assets (i.e. legalized fraud), we’re going to wish we were living in Iceland.

    [www.fedupusa.info]

  14. frodo_35 says:

    If we buy any stock we need to freeze it and not allow any trading of it as people will just dump it when it shoots up and leave the govt with a bunch of worthless stock. The bottom line trumps patriotism in this day and age.Thus the mess were in now.

  15. sirellyn says:

    Even serious “free market” republicans are warming to the cash injection idea? WHAT? Are you kidding me? Many of them have been saying that interest rates should be RAISED and that the big banks should FAIL. What happened in the early 80’s? Volker raised interest rates and low and behold the stock market went up.

    Are people trying to crash the dollar for an excuse to institute a world wide currency? I seriously don’t get what they are thinking.

  16. jimv2000 says:

    >Government May Begin Buying Bank Stock Within Weeks

    With what?! Oh yeah, more make-believe money!