"All told, the program would put the guarantee of the government behind much of the plumbing of American financial markets, a step that would have appeared inconceivable a few months ago. But the seizure in credit markets and last week's plunging stock markets forced policy makers around the world to shift gears."
There you go.
"While the Treasury wants to put money into banks, its main goal is to attract private capital. To make sure private investors aren't scared away, the Treasury is expected to structure its investment on terms favorable to the banks and will inject capital in exchange for preferred shares or warrants, these people said, a move that is designed to not hurt existing shareholders."
Of course not.
"William Poole, former president of the Federal Reserve Bank of St. Louis, was a fierce critic of Treasury's initial plan to buy up distressed mortgage-backed securities. Such a scheme, he said, would lead banks to dump their worst assets on the taxpayers.
But Treasury's new tack may well do the trick, said Mr. Poole, now a senior fellow at the free-market-oriented Cato Institute.
"Investors need to be confident that the banks they're dealing with are unquestionably solvent, and it's in the interest of banks to assure investors that that's the case," Mr. Poole said. "One way banks can provide that assurance is to raise additional capital, in some combination of private and government capital."
Hey, a Cato guy agrees with me!
"Moreover, blanket guarantees might inspire banks to take unnecessary risks, warned Frederic Mishkin, a Columbia University economist who stepped down as Fed governor in August. "You don't want to give a guarantee to banks that are in trouble" that might try to gamble their way out of problems, he said. He says offering broad guarantees will require that U.S. officials more aggressively act to sort out good banks from bad banks."Wasn't that what we had before?
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