Hello. Come on in. The daddy writes about current events, literature, music and, once in a while, drops something on you from back in the day to make you pause and ponder, stop and stare, and begin to wonder. Who knows? You may start to pace the floor, shake your head from side to side, then fall down on bended knees in a praying position and cry, "Lawd, have mercy! What is this world coming to?" Check yourself! But this blog is NOT about the daddy. It's about you: your boos, your fam, your hood, your country...our hopes and dreams of a better tomorrow. So let's make a pact: the daddy will put it on the track if you'll chase it down and hit him back. Together, we can definitely take it to another level. Shall we?"

Tuesday, October 14, 2008

Bush's Bailout-Will it Work?

Today, the daddy is feeling the new consensus that is developing in the financial markets, which is for governments to buy up stakes in banks to stabilize their economies. This idea is spearheaded by Gordon Brown, Prime Minister of Britain. You may recall that Brown was Finance Minister for former Prime Minister Tony Blair for 10 years.

As a part of its rescue plan, Brown has moved swiftly to take stake in three of Britain's biggest banks. Though the plan has not completely developed, the essential idea is to stabilize the economy by the government putting stakes in the major banks. This, in turn, would, they hope, restore confidence in the economy.

In addition, under the plan, the major executives and directors in these banks will step down and new government executives will oversee those three banks. They will oversee recapitalization and loans and ensure that banks work closely in terms of loaning to each other.

While insisting that the government is not in the business of running banks and that this rescue plan is only temporary, Brown stated that banks must be a ``rock of stability'' during this global economic crisis and help citizens to gain more confidence in its financial institutions.

Other governments are beginning to copy Brown's plan, including the Bush administration. Yesterday, Bush announced his plan to put $250 billion of equity stakes in major banks to shore up its financial system. This 250 billion would be a part of the 700 billion package that was authorized by Congress to address the financial crisis of U.S. institutions.

Like Brown, Bush claims that this greater involvement of his government in financial institutions is temporary but very necessary. As he put it, "This is an essential short term measure to ensure the viability of America's banking system."

Mr Bush said that the Federal Deposit Insurance Corp will insure most new debt issued by banks and expand insurance to cover non-interest bearing accounts, as used by small businesses for day-to-day operations.

While the stock market is up globally, it is anybody's guess as to whether this measure by Bush will stabilize the U.S. economy. For example, will it address the pressures on the economy as a result of the housing crisis marked by foreclosures? Will it address the continuing decline in real incomes of the middle-income Americans or the increase in unemployment in the economy?

It should also be noted that, even though Paul Krugman, an economist who has just received the Nobel Prize, numerous congressional leaders like Byron Dorgan (D-North Dakota), Dennis Kucinich (Democrat-Ohio) and Jessie Jackson Jr. (D-Illinois) have made more comprehensive recommendations to get the economy going (putting monies in the hands of middle and low-income citizens as well as bank recapitalization), the Bush administration is following Brown's lead.

The question is this: Will Bush's rescue plan, borrowed from Britain's Prime Minister Brown, lead to long-term stability for the U.S. or only a temporary one at best?


rainywalker said...

I think there is a possibility that this new plan may work over a period of time by making dollars flow freely between banks. The downside for me is the word "temporary." The government will never gets its claws out of the banking system, now that they are in. Those who control the money like the Secretary of the Treasury have to much power and can end up controlling or influencing policy and the country.
History repeating itself!

MacDaddy said...

rainywalker: Temporary? Who are they kidding? They're in to stay. And that may be for the best. Investors rightly have no trust in the private institutions to do a good job, or the government to monitor them effectively from afar. I know this goes against the government-stay-out of it attitude that we've held so long. But without confidence in the system, people are going to take their money out of the banks.

Vigilante said...

I'm with MacDaddy: the only silver lining in the clouds from this perfect storm is the possibility that our American ideology that government is bad and unfettered capitalism is good - that this dogma (actually), will be fileted.

Vigilante said...

More than that, it's important to acknowledge that the bank nationalization plan is not a Bush White House idea; it was imported from England.

MacDaddy said...

"it's important to acknowledge that the bank nationalization plan is not a Bush White House idea; it was imported from England."
vigilante: This is amazing. Britain is not that big a country. Historically, it hasn't been that big a player. It's interesting how, while Secretary Paulson of the U.S. was fiddling around, Brown and his economic guru, Alistair Darling, went straight to the problem and said, "Let's put equity in the banks, get rid of the clowns that ran them into the ground, and restore confidence in our financial system. They didn't remain beholding to some stupid laissez faire ideology but came up with a practical solution that looks promising, at least in the short term.

Vigilante said...

You said it, MacD!

All the Queen's men and all the Queen's horses were able to put Busheney's Humpty-Dumpty back on the wall where it shall teeter three more months until we can get an elite president in the White House to apply American ingenuity to restore regulation to tame the so-called free market.