Bush on banks

President Bush just made a statement at the White House at 7 a.m. 7 a.m.? Messages like that aren’t aimed at folks like me. It’s aimed at Wall Street, unless the people of California have set their alarm clocks for 5 a.m.

Bush announced the government is investing part of the $700 billion bailout to purchase stakes in nation’s banks (Wait a minute! Wasn’t that money needed to buy up toxic mortgages? Now it’s not?), by purchasing stock in the bank. He also said the FDIC will guarantee “most new debt.”

The FDIC will also cover “non interest” accounts used by small businesses to cover day to day operations. And he said the Federal Reserve will serve “as a lender of last resort” to buy commercial paper.

According to Nobel Prize winner Paul Krugman, several of these actions could’ve been accomplished weeks ago, but Treasury Secretary Harry Paulson ruled out the suggestion of Federal Reserve boss Ben Bernanke..

The Dow Jones futures suggested a lousy opening on Wall Street, but turned up slightly after the president made his announcement.

“It’s not designed to abandon the free market,” President Bush said, seeking to calm fears on the right that capitalism is dead.

In an interview this morning, Krugman defended the president’s latest initiatives. “A certain amount of public intervention and partial takeover of the financial system is something you have to do,” he said. “Leaving the financial system to fix itself on its own was a disaster in the ’30s and brought us to the brink of disaster this time. It’s not a case for socialism, it’s a case for ovesight. We are going to rediscover some of the things Franklin Roosevelt learned years ago.”

Krugman also called for more aid to state and local governments and an extension of unemployment benefits.

Not surprisingly, the Wall St. Journal has a somewhat different view. “The Government is Contributing to the Panic” suggests the switch in Paiulson’s strategy has created the impression that the administration really doesn’t know what it’s doing.

  • Surprise – we didn’t really need the big bail out bill!

    Oh wait is that not what so many people, like me, have been saying for weeks?

  • brian

    Well… the authority to buy bank stock was in the bailout bill. According to the Planet Money podcast, this plan was favored by many economists from the begining. It would have been hard to get past the bank lobby though, so it had to be snuck into the bill.

    If you havn’t checked out the Planet Money Podcast/News Booya, you should. It has an interesting perspective on the whole crisis.

  • bsimon

    What I’m wondering is whether we’re now going to be presented with Krugman’s views as the gospel truth now that he’s won a Nobel Prize?

  • bigalmn

    They did buy the toxic mortgages. When you buy part of the companies that hold them you are buy the mortgages except this is the easy way, they did not have to figure out a value for them they just had to buy stock at current levels.

    Too bad they did not buy before yesterday’s run up they would have gotten a better deal for us.

  • Bob Collins

    bsimon, doubtful, although a Nobel prize does tend to bestow additional credbiility. Keep in mind, he won for his research work at Princeton, not for his op-ed pieces.

  • bsimon

    “a Nobel prize does tend to bestow additional credbiility. Keep in mind, he won for his research work at Princeton, not for his op-ed pieces.”

    I cerainly don’t want to detract from the accomplishment. I was a bit surprised to see him prominently quoted at news cut. It just caught me off guard, which triggered snark.

  • Bob Collins

    I guess I needed to point out the irony. This is the line I’d hoped people would notice without me needing to put it in bold:

    “Krugman defended the president’s latest initiatives.”