Bush Sinks $250 Billion into Banks

The free-market-loving Bush administration has just announced the US taxpayer will buy $250 billion worth of equity in nine banks. Reports are some of the banks had to be pressured into the sale by the Treasury. At least, when Mr. Bush announced the move yesterday morning he addressed “My fellow Americans,” rather than “Comrades.”

Just last week, Treasury Secretary Hank Paulson said an equity injection would be an admission of failure. Apparently, the stock market disaster of last week made him either change his mind about what failure means or he has admitted failure. Perhaps, the British and then European equity deals with their banks forced his hand. He stated, “Government owning a stake in any private US company is objectionable to most Americans, me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

Regardless, the move is a partial nationalization. Aware of this, Mr. Bush said, “This is an essential short-term measure to ensure the viability of America's banking system.” That begs the question of why its viability is in doubt. He also insisted, “The program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors.” Not a word about the Treasury selling at a profit, he left that for Mr. Paulson.

The nine initial banks taking part are Bank of America, Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo. Others have until November 14 to make a request for cash. Two anonymous sources have said the banks were told they had to participate “for the good of the national economy.”

The program will probably do much to loosen up credit in the US. However the situation does remind one of something Winston Churchill said, “Americans can always be counted on to do the right thing -- after they have exhausted all other possibilities.” And let no one mistake what has happened here. The “conservative” Republican Party has had to have the government force banks to sell equity to it in order to restore the confidence lost due to Republican Party ideology, policy and performance.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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