The Fed has plans for the first $250 billion of the $700 billion we loaned them a few weeks ago. Buying stock in private banks and expanding protections for the U.S. financial system. This idea comes after a Treasury Department meeting between top government economic officials and executives of the largest banks in the country. Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, JPMorgan Chase & Co. CEO Jamie Dimon, and Bank of America Corp. CEO Kenneth Lewis were all asked to attend. A who’s who of very powerful men with an agenda all their own convening with a Government official to discuss the economic future of our country. Following the meeting President Bush, the Fed’s biggest puppet, “was to be briefed early Tuesday by economic advisers and then announce the plan which the Treasury said was designed to restore functioning of our credit markets.” We have granted the Secretary of the Treasury the ability to do what he sees fit with our hard earned money and then he briefs the President on what to tell the public after he has made his decision. Sounds a tad backwards does it not? Plus, I was under the impression that the purpose of the bailout was to buy up the “toxic assets” weighing down the balance sheets of these financial institutions. You guys intimidated us with the gravity of the situation, convinced enough Congressmen of the severity, were somehow permitted the money to buy these assets, and then just decided to “devote a significant part to direct government purchases of stock in banks.”(Associated Press) This is an idea that Paulson brought up only last week, subsequent to the approval of the bill for its intended purpose and I’m sure after many a conversation with his old banking buddies.
The plan would also provide a way for the government to insure loans that banks make to each other, a critical part of the credit system. This move alone eased the minds of many bankers and the market responded accordingly with the largest single day gain ever. Again, let me stress that I am no economist and am unable to guess if this may be what the financial sector needs in order to sustain itself. I do know enough to understand that the “frozen” credit markets could have been thawed out weeks ago as a result of this insurance from the Fed. We only decided to do it now in order to “catch up to Europe in what has become a footrace between countries to reassure investors that their banks will not default or that other countries will not one-up their rescue plans.”(NY Times) They were afraid that investors from here might move their money to a safer place since Europe had already guaranteed their bank’s loans. “We’re trying to prevent wholesale carnage in the financial system,” stated Kenneth S. Rogoff, a professor of economics at Harvard.
All the while, we are pumping dollar after dollar of money we seriously do not have into these institutions. I have always heard that the market fears uncertainty and that is all that is surrounding us. Perhaps the problem is not just that the credit markets are supposedly frozen and toxic assets are obviously everywhere. Maybe the problem is that investors are uncertain of our future and the government got involved in an area they should not have with a solution that is causing more problems than it is solving. Maybe they are scared because in less than one month we will be choosing a new President, when neither of the candidates has revealed any meaningful suggestion for our current economic situation. Or maybe, just maybe, we are feeling the repercussions of our government pushing “spending” down our throats for so many years, encouraging us that credit rather than savings is what our economy thrives on. We do not have to borrow in order to prosper. Our personal, and national, credit limit is maxed out and it is time for a change (Please excuse the unintended Obama slogan).