In a MAJOR reversal, the flexibility to buy shares in troubled banks--as Britain is doing--may be taken up as the primary direction, the NY Times reports. The result would be a giant step toward Paul Krugman's preferred alternative:
Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.
Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks' balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.
The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt.
I had written a somewhat different verions of this post, when the WaPois reported a deal--sort of, "a tentative agreement.... "Lawmakers said their staffs would be working through the night to assemble the package and post it on the Internet." Supposedly they're even looking for feedback. Right.
So, it may or may not be online by the time this post goes live. Whatever is in it, we know it will far from what it should be. We also know that even after full details are posted, what it actually means may remain unclear for quite some time--just like everything else Bush does. So I want to go on record now supporting a two-fold approach that would clearly be superior. Yes, it would have been nice to be clear about this before it was politically too late, but that's the whole Shock Doctrine routine, now isn't it? Still, I think it's important to put this out, and to gain clarity, if for no other reason than (1) a deal isn't done until it's done and (2) even after that it can come undone. There's no guarantee that the bastard Paulson plan will work, and if it falls apart, we should be prepared to do it right.
One part is Brad DeLong's proposal for nationalization, along the lines of what Sweden did in 1992, which you can read here. The second part is from Chuck Collins and Dedrick Muhammad, laid out here, which aims to raise money from the wealthy, who own and benefit most from Wall Street investments, and to spend it partly on bailing out Main Street as well. The two pieces don't fit exactly together, but close enough for jazz--which is far more exacting than finance.
This is definitely not what the Democrats, modifying Paulson, are up to. But it provides a clarifying contrast, at the very least. It's no longer just "Hell, no!" It's a positive alternative.
In covering the proposed $700 billion bailout of Wall Street don't repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don't assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don't assume there is a case just because officials say there is.
The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.
The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)
He then goes on to talk about specific journalistic question-asking around the chief question of the day: is credit really about to vanish?
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