Taxpayer National Bank

Providence Journal: Happily, a provision in the Great Bailout Law survived the Wall Street lobbyists and is letting the federal government buy equity in troubled banks to recapitalize them — an approach that seems a lot better than buying banks’ toxic assets. Treasury Secretary Henry Paulson will use at least $250 billion of this tool.

Such equity stakes would give taxpayers a chance to eventually recoup at least some of their losses. This would happen as the stock purchases improve banks’ capital position enough so that they’d get credit flowing again. That, in turn, would boost confidence, which businesses (including the banks themselves) and individuals surely need a lot more of to stem the economic slide.

Unfreezing credit

The previous focus, on having the government buy bad bank assets, was nice for the banks and especially their senior executives, but not particularly for the public — though even that was better than letting the cataclysm continue. Something has to be done quickly to recapitalize the banking system and thus unfreeze credit.

What’s going on here, of course, is a nationalization of the banking system that we find distasteful. If only the Wall Street establishment had not been so successful in bribing the Washington establishment of both parties to countenance the creation of vast quantities of unregulated, unquantifiable and in some cases fraudulent “instruments,” abetted by an ever faster globalized international financial “system.” Further, some of America’s banks are too big; their sheer size and complexity magnify the effects of their managements’ shortsighted and/or selfish decisions.

Obviously, a new oversight system will be borne out of the recent chaos. Part of it might even include having a Securities and Exchange Commission that actually regulated something!