U.S. acts to ‘preserve’ market
Agence France-Presse October 15, 2008
WASHINGTON — U.S. President George W. Bush defended the partial nationalization of nine big American banks yesterday as vital to saving the free world’s markets, an intervention that would have been unthinkable scant weeks ago in this bastion of free enterprise.
“These measures are not intended to take over the free market, but to preserve it,” the President said in brief remarks in the White House Rose Garden. “I’m sure there are some of my friends out there saying, ‘I thought this guy was a market guy; what happened to him?’ ” he said.
What happened, the President said, was the stark realization of just how dire the crisis had become.
Still, the jarring reality of a Republican president at the end of an increasingly unpopular second term vowing to save American capitalism by infusing big banks with hundreds of billions of taxpayer dollars underscored the severity of the economic meltdown.
Treasury Secretary Henry Paulson was apologetic even as he defended the biggest bailout of the nation’s banks since the depths of the Great Depression.
“We regret having to take these actions,” Mr. Paulson, a former head of Goldman Sachs, one of the once iconic and now battered Wall Street investment banks.
“Today’s actions are not what we ever wanted to do, but today’s actions are what we must do to restore confidence to our financial system,” the Treasury Secretary said.
For self-proclaimed champions of the free-market economy, yesterday’s actions clearly grated.
“Government owning a stake in any private U.S. company is objectionable to most Americans, me included,” Mr. Paulson said.
In following Britain’s, and then Europe’s, lead in taking big equity stakes and pouring unprecedented amounts of public monies into banks and other financial institutions, the Bush administration was joining what amounts to concerted international efforts to loosen financial flows clogged by toxic mortgage debts.
Leading economists largely endorsed the government’s action, but often noted that it added to the crisis by being slow.
“This is now, finally, the right move,” said Barry Eichengreen, an economist at the University of Southern California at Berkeley. “Were it a student paper, I would give it give it an ‘A-’ for quality but lower the final grade to a ‘C’ for lateness,” he added on a Wall Street Journal blog.
Under pressure, nine of the biggest names in U.S. banking - Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Merrill Lynch & Co. Inc., Morgan Stanley, Bank of New York Mellon, State Street Corp. and Wells Fargo & Co. - will have the government as a major stakeholder.
Both of Mr. Bush’s would-be successors quickly seized on the latest plan, both claiming it was essential and exposed the folly of their opponent’s economic policies.
“It’s pretty clear that we had to take that action,” said Senator John McCain, who has sought to distance himself from the Bush administration. “I want us out of the banking business as soon as possible. It’s not the government’s business.”
Mr. McCain also took a shot at his rival, Senator Barack Obama, the Democrat standard-bearer. “Senator Obama is going to raise your taxes. And in this economy, raising taxes is the surest way to turn a recession into a depression,” Mr. McCain said.
For his part, Mr. Obama keeps linking Mr. McCain with what he calls the failures of the Bush administration’s stewardship for the past eight years.
“The plan appears to extend a broader set of guarantees to banks without requiring any additional regulation, which represents more of the same failed philosophy that got us into this mess,” Mr. Obama said, adding, “Injecting capital into our financial institutions is essential to stabilizing our economy, but we must make sure we are not giving sweetheart, insider, deals that shift the risk to taxpayers.”
The decision to buy equity stakes in big U.S. banks amounts to a stunning change in the original plan, unveiled less than a month ago, in which Mr. Paulson proposed a massive government-funded plan to buy bad debts. That $700-billion bailout was initially rejected by Congress and passed later only after being sweetened with billions more in tax breaks.
After it explicitly rejected buying equity stakes, the Bush administration has now embarked on the largest such effort since the 1930s and the President seems destined to leave office in January in the middle of a new, evolving and uncertain era for financial institutions.
The first $250-billion tranche is already earmarked for equity stakes in banks and other failing financial institutions. Mr. Bush, as required by legislation, certified yesterday that another $100-billion would be needed. Whether any of the remaining $350-billion will be left when the next President takes office Jan. 20, 2009, remains uncertain.