It doesn't matter to us that the Bush financial acolytes didn't come up with the idea first. The British did. But we don't care where the good idea came from, so long as it works.
It has been widely reported that Fed Chairman Ben Bernanke has wanted to do something like this for some time, but that Treasury Secretary Henry Paulson resisted. Paulson, the former chairman of Goldman Sachs, is one of the Wall Street pirates who got us into this mess. He made tens of millions of dollars in booty, sometimes in a single year, while piloting Goldman toward the doldrums. Yet as treasury secretary, he clung to his anti-interventionist principles even as the ship was taking on water and the pumps were failing.
Ironically, Goldman will be one of the major beneficiaries of the latest bailout scheme.
Fortunately, the U.S. government will own preferred stock in the banks, which will pay a 5 percent dividend for the first five years and 9 percent thereafter. That means that the taxpayers could make money on the deal, particularly if the shares are sold back into private hands after they appreciate.
The government will insist that the banks use the new capital to make new loans, helping to get the credit market under way again and giving businesses the short-term loans they need to keep moving forward.
The prevailing theory seems to be that we are in a solvency crisis, and that injecting new capital into weakened banks through preferred stock is a more efficient way to recapitalize them than by buying the toxic mortgage-backed securities that created much of the problem, although the treasury will do some of that, too.
The treasury's measures will be accompanied by new action by the FDIC to offer banks unlimited deposit insurance for accounts that do not bear interest, a tactic designed to help small business. The FDIC also will guarantee, for a fee, new unsecured debt issued by financial institutions.
We hope that this strategy will put new wind in the economy's sails. Then the federal government must set about the business of re-regulating the financial industry.
