Pretty Soon You’re Talkin’ Real Money!

$700B here, $900B there, and now another $250B on top!

The government put itself four-square into the country’s banking business Tuesday, resorting to what President Bush conceded was the unwelcome choice of buying into the system to loosen paralyzed channels of credit.

The president said the decision to buy shares in the nation’s leading banks — a kind of federal intervention not seen since the Depression era — was “not intended to take over the free market but to preserve it.”

Translation: We already broke it, now we have to buy it.

Said Paulson: “Government owning a stake in any private U.S. company is objectionable to most Americans — me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

Nine major banks will participate initially, including all of the country’s largest institutions. The first bank to take advantage of the new program was Bank of New York Mellon which announced Tuesday that it would sell $3 billion in preferred shares to the Treasury.

Some of the nation’s largest banks had to be pressured by to participate by 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.

(emphasis added) Don’t you love it? It’s objectionable to Paulson, and to the American public, and even to the banks themselves. But they have to do it anyway.

A person I know who works in the finance industry said it best: I’m not sure what to think any more. There are a lot of comparisons to 1929, except the government at that time didn’t have the capability to throw any liquiditity in the markets.”

Yep, we’re in pretty much unchartered territory here. We’re taking a situation with echoes of 1929 and throwing so much liquidity at it that we’re not sure what’s going to happen. Nobody knows what to think right now, and that’s pretty damn scary. That Paulson and Bush think they can actually manage the situation is even worse. This really could be the end of America’s financial position in the world.

UPDATE: It has been mentioned elsewhere (and alluded to in the article) that this $250B is part of the $700B bailout money. This appears to be true. So now we have a huge run-up in bank stock prices, because investors know there is a ready buyer about to toss $125B immediately into the 9 biggest banks. Great!

  • Paul

    Shouldn’t a few CEO’s sit around with Bushy n’ Co. for a chat. I mean, we’re talking very large corporations here. Who has ever managed that much money? The president sure hasn’t. And I would argue that the Fed hasn’t either. They’ve never had to cut so many trees in their whole existence!

    It seems like they’re pullin’ scraps from their back-sides, unable to recognize what just came from their back-ends, they give it a name, and say, we should buy it because we made it. It’s the whole UBS bank, mortgage crisis, unlabeled leverage, Grade AAA stinky paper problem again.