The Second Bank of the United States lost its Charter in 1836. Are we on our way to the Third Bank of the United States? Or will the government just "invest" in existing banks?
Like many of my fellow readers, my modest stock portfolio and retirement accounts have pretty much been lain to waste by the collapse of the stock market resulting from the Bush Administration's laissez-faire approach to the financial markets. And things aren't as bad for me as they are for many people, since I am (at least for now) employed fulltime, have health-care benefits, have no credit card debt, have no loan on my small 25 mpg car, and have a very small mortgage on my house.
I've lived through a fair number of recessions and bear markets, but can't recall anything before that seemed to threaten the long-term economic stability of our country and citizens in the same way. Of course, we have never previously had a situation where the economies of various countries were so closely linked. The Saudis and the Chinese hold billions of US dollars, and have to be getting a bit worried about their value. The banking systems of Western European countries are tightly tied to one another and to that of the US, so they are getting hit in much the same way. Amazingly, Ireland and Germany have agreed to guarantee all bank deposits. Iceland is on the verge of bankruptcy because of the credit crunch.
What's most astonishing to me, though, is the current Administration plan to invest in the banks, following the recent lead of the Brits. (Banks have long been nationalized in some other countries, including India and Israel.) This notion has been advanced by our Treasury Department with broad support from Wall Street financiers, the very people who got us into this mess. So we are going to prop up the economy by propping up Citibank, Chase, Bank of America, and many of the other institutions that created the mortgage mess and supported the whole CDO boondoggle.
The Administration will probably call this a "free market" move, since they are allowing the banks to remain independent, at least for now. In reality, though, it's not just a "cash injection", but rather an investment and partial nationalization, since the government will end up with equity in the various banks. Can you imagine how much hell would break loose if this were done by a Democratic administration? Last year, the Bushies wouldn't even support extending the SCIP program to cover more children.
If this approach isn't successful, and the banks continue to falter, then the government will then end up with majority control of some of the current banks. Then the US is going to have to put the "full faith and credit" of the government behind the banks, in much the same way that it does for Treasury bills. At that point, there's no logic in having Citibank, Chase, B of A, and so on: we could end up with the Third Bank of the United States, fully nationalizing a failed industry that is vital to the country's well-being.
I hope that the new Administration will be ready for this possibility. The current gang of thugs has irretrievably harmed our economy and the security of 300 million people (excluding the 5 million at the "top"). Let's hope that someone figures out how to stop the bleeding.