The government put itself four-square into the country's banking business Tuesday, resorting to what President Bush conceded was the unwelcome choice of a partial nationalization in order to loosen paralyzed channels of credit.
Nine major banks will participate initially including all of the country's largest institutions, he announced, in a move that sent stocks soaring on Wall Street.
Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.
Executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.
After the purchase of preferred stock in nine large banks, the new program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.
The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction.
I just don't understand why we're buying shares in banks that aren't even in trouble. I really thought the whole point of a bailout was to rescue the financial institutions that are teetering on the edge of bankruptcy, not to invest in a private industry for the fun of it.
These organizations systematically destroyed their own reputations and undermined our entire economy, and we're stuck bailing them out. And now they're going to divert extra money to "remove the stigma" from their failure?
And then there's that tiny little word "if" hidden in the last paragraph:
...if the rescue plan works...
And what if it doesn't?
Does anybody know where I can find Galt's Gulch? I'm ready to move!