Oct 14, 2008 6:20 pm US/Pacific
Does The Bank Nationalization Program Go Too Far?
Government Will Hold a Stake in 9 Major Banks
SAN FRANCISCO (CBS 5) ―
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President Bush announces a plan to have government buy shares in the nation's leading banks from the Rose Garden of the White House Tuesday.
AP
The federal government is spending $250 billion from the bailout plan to buy shares in the nation's largest private banks. The goal is to get banks lending money again. But the plan is raising the question: How much government intervention is too much?
Eric Floyd is a consumer keeping up with the latest news on the bailout. The government will guarantee loans between banks, buy up bad debt weighing them down, and take a temporary stake in the banks themselves. It's more government intervention than he would like.
"I worry about that to some degree, but this particular situation did warrant a response," Floyd said.
USF Finance Professor Richard Puntillo is marveling at the significance of it all. "It's an amazing situation. Its shock and awe in the financial world," Puntillo said. "They brought unbelievable power and force to bring to bear strength of the government and got resources to prop up the financial system."
Under the revised plan, the federal government will take a $250 billion chunk from the $700 billion bailout plan to buy shares in 9 U.S. banks. Among them are big names like Citigroup, Goldman Sachs, Wells Fargo, JP Morgan Chase, B of A, Merrill Lynch and Morgan Stanley. As the banks make money, the government gets paid back. But during this time, the Feds get to intervene for example by setting limits on executive compensation.
While it's a rare move to have this level of government involvement in the banking industry, Professor Puntillo said calling it socialism goes too far. "We have moved at an incredible distance in a very short time but we are not socializing ownership. We are not a socialist society yet," he said.
Puntillo also said the Treasury's stock won't hold voting power but still this level of government involvement is truly historical.
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