It’s raining in my undisclosed client location and since I work inside most days that’s okay. The cold temperatures show the seasons are clearly changing.
My guess is that in Washington the same type of seasonal change is occurring. The ‘bailout’ has morphed into buying ‘just a little bit’ of each large bank with the promise of ‘investing’ in other smaller institutions that are running into problems. On the surface, the plan seems pretty reasonable assuming the major problem in the market is that all the banks have decided to go on vacation rather than lend to one anther or those who deserve the good faith that comes with a loan.
I know that most economists prefer this plan to the ‘buy up all the poison’ paper because it’s simpler and easier to price but I can’t help but feel concerned at such a bold move. Reagan once said be most afraid when you hear, “I’m from the government, and I’m here to help.” For the most part, this seems like sound advice.
Yes, these are challenging times that probably called for unprecedented action – and even in the shadow of the Great Depression and World War II – this is very unprecedented for our country. It’s not going in that’s a concern, it’s getting the government the heck out of the market when all this is over that bothers me.
I haven’t read the full plan but hopefully it outlines a clear criteria that allows banks to exit the government ownership after a market cooling off period (January 2009?). Criteria for leaving the program provides a huge incentive for the banks to restructure their holdings, and will also be a valuable signal to the market that each exiting bank is good to go.
The tentacles of government rarely retract when extended. Let’s hope this time is different. Now, that would be unprecedented.