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.