Wednesday, November 12, 2008

Bailout Plan Changes Again

All the hype about Treasury Secretary Henry Paulson’s wonderful plan to save Wall Street and the financial system by purchasing troubled assets is now officially over; the plan has changed. Officials have apparently come to the conclusion that buying these assets will not help in the immediate future, and they need results now. Instead, they plan to continue buying stakes in the financial institutions and encourage them to resume lending, according to the Associated Press. I don’t know about you, but I think this is just a way for the administration to save face while admitting they were wrong in the first place.

I don’t think too many people were thrilled about Paulson’s original plan to buy up the toxic assets from banks--well, other than the bank executives and shareholders. That plan was severely flawed because it offered little upside to taxpayers and required too little accountability on the part of banks. Many people have speculated that Paulson cares more about the banks then taxpayers. I’m not going to make an argument for that one way or another, but I think the current plan of buying bank shares is much better. At least this offers taxpayers some level of upside and allows us to have a say in things such as executive bonuses and so on.

It will be interesting to see how the bailout continues to morph. They have been holding out on offering aid to the auto makers and financiers thus far, but how much longer can they hold out? What about other companies? American Express was allowed to become a bank and is now seeking $3.5 billion in government assistance (everyone should have seen that one coming). Where will they finally draw the line? Many companies and industries are going to be hit hard during this recession and they will all want a piece of the government handouts. I would imagine that this won’t be the last time we are talking about a change in strategy for the bailout, especially considering that we will be looking at a new administration soon.

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