Bush banking plan draws quick reaction

Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and FDIC head Sheila Bair announce a plan to inject $250 billion into beleaguered U.S. banks.

In a move to further shore up the banking system and help avoid a world financial disaster, the Bush administration announced this morning that the U.S. government would be taking a stake in the nation’s largest financial institutions. Reaction to the move has been swift, global and generally favorable.

Simon Johnson, a former chief economist of the International Monetary Fund, in The New York Times:
“[W]e’ve stepped back from the cliff.”

Nariman Behravesh, chief economist at the forecasting firm Global Insight, in the Los Angeles Times: “The history of banking crises suggests very strongly that you need heavy government involvement. Half measures don’t work. This is a good thing. It’s about time.”

European Commission President Jose Manuel Barroso, quoted by Reuters: “We see light at the end of the tunnel, but we are not there yet.”

RTT News, a global financial news wire:
“As a scholar of the Great Depression, [Fed Chairman Ben] Bernanke recognized the delayed response of the era that many have blamed for the depth and length of era.”

Liz Moyer and Brian Wingfield writing for Forbes.com: “Making direct, perpetual preferred stock investments in the biggest U.S. banks is the government’s most aggressive move yet to stop the carnage in the credit markets. And it has the potential to divide winners from losers in the world of commercial banking, because the government wouldn’t put taxpayer dollars at risk, presumably, by investing directly in an ailing bank that could otherwise be merged with a healthy bank or closed.”

John D. McKinnon writing for The Wall Street Journal’s Washington Wire blog: “Republicans aren’t supposed to like the idea of increasing the government’s role in anything, much less in banks and financial markets. But faced with the need to do just that on Tuesday, President Bush didn’t dodge the task … Bush was not only being an interventionist, but a multilateralist! And maybe a bit more of a realist. Bush focused in his comments on the toll that the crisis has taken on the public, and the disconnect that many people still see between the government’s careful attention to big banks and their own feeling that they’ve been left to their own devices.”

The Times of London: “It is a painful move in a country that prides itself on being the home of market capitalism.”

Alan Blinder, a Princeton economist and a former Fed vice chairman, in the Washington Post: “When I was talking to members of Congress back then, they believed they were voting to buy up troubled assets, not to make capital infusions in banks. If I were a member of Congress, I would be wondering about bait and switch because that was not really discussed.”

Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, in The New York Times:
“The Europeans not only provided a blueprint, but forced our hand. We’re trying to prevent wholesale carnage in the financial system.”

Daniel Politi writing from Slate.com:
“If there’s a clear winner in all this, it’s the British government. Of course, that could all change if the rescue plans that are taking shape around the world fail. But as of now, Prime Minister Gordon Brown went, in a matter of days, from lame duck to global leader as the plan he announced last week to inject billions into British banks was quickly taken up by European leaders and now the United States.”

Donn Vickrey, co-founder of Gradient Analytics, expressing optimism that the plan would be effective in thawing the freeze in bank lending, in the Guardian of London: “Many of the basic foundations of the economy are reasonably sound, although shaken. We need to make those banks that have capital lend to one another, and for those that don’t, we need to stabilise through capitalisation.”

Mike Lenhoff, chief strategist at Brewin Dolphin in London, in the Independent of London: “No one can expect that any of this will avert recession. The forces of economic contraction were set in motion long ago by the credit crisis. But the intention behind introducing a coordinated and, to a large extent, uniform response is to restore confidence and prevent a recession from turning into something far worse.”

William O’Donnell, U.S. government bond strategist at UBS Securities, in The Wall Street Journal: “The U.S. authorities have apparently had all the fun that they can stand in this credit downturn as they unleash the public wallet on the global financial markets.”

Roger Buoen is a managing editor at MinnPost.com. He can be reached at rbuoen [at] minnpost [dot] com.

Comments (2)

  1. Submitted by Bernice Vetsch on 10/14/2008 - 12:23 pm.

    Within a couple days of the Paulson plan announcement, American economists (and some members of Congress) were suggesting this very method of addressing the problem, which they correctly defined as a lack of capital with which to resume normal lending.

    The Bush Administration scared Congress into voting for the inferior Paulson plan with their usual Chicken Little bravado. Alternate legislation written by Rep. Peter DeFazio of Oregon did not make it to the floor for a vote.

    Now that the ideologues in the White House and Treasury have had almost a month of clinging to their failed Milton Friedmanism, hoping that somehow the markets would begin to move again, they were finally ready to accept the suggestion when it was offered by Gordon Brown and supported by other countries. My thanks, Mr. Brown!!

  2. Submitted by Aaron Petty on 10/14/2008 - 03:28 pm.

    Great! Just like Freddie and Fannie shares I hope. The monetary system sucks! Now it just sucks for everybody.

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