Getting it half right

As part of the $700 billion (or more) bailout of the financial industry, ABC News says,

[t]he government will buy an ownership stake in a broad array of American banks for the first time since the Great Depression, Treasury Secretary Henry Paulson said late Friday, announcing the historic step after stock markets jolted still lower around the world despite all efforts to slow the selling stampede. ...

The administration received the authority to take such direct action in the $700 billion economic rescue bill that Congress passed and President Bush signed last week. ...

Paulson said the U.S. program would be designed to complement banks' own efforts to raise fresh capital from private sources.

However, this really would be an "ownership stake" in a rather hollow sense, because

[u]nder the equity purchase program, the Treasury would not be involved in bank management, Paulson said.

That is, the purchases would be of senior preferred shares of non-voting stock. The value of the taxpayers' "ownership stake" would depend entirely on the management skills of the same same of wizards who screwed up in the first place. That's nothing but a cheap excuse to hand out free money to the banks. That's not us getting ownership of banks, that's us getting pwned by them.

So yeah, half right: Yes, buy up equity - in fact, I suggested the other day that to get their part of the bailout bucks, a bank would have to agree that buying the bad debts was buying an equivalent amount of equity in it. But no, not non-voting equity. Not "no say" equity. The deal comes with terms, it comes with conditions, it comes with a price. And that price is public control.

As I indicated before and will make explicit here, I wouldn't have the government run the banks. I'd have a public agency - and we can discuss how best to socialize that agency to secure broad public participation and not create an agency of investment industry insiders - act like a board of directors that would put new management in place and run the nationalized institutions on a non-profit basis.

Look, the bottom line - a particularly apt reference here - is that what we have been through and are going through has proved that the "free market" is a failure. Without public oversight, without public regulation, without direct input and yes, direct aid from the public, the "free market" will regularly collapse into a greed-lined pit of its own making, dragging the dreams (as well as the homes, jobs, and savings) of many millions who bear none of the blame along with it.

We have two choices: We can accept that or we can turn away from it to an economy based on some version of democratic socialism. An economy, as again I said the other day, "built on need, not greed." I know I don't talk about socialism much, preferring to leave the theorizing to others, but I hope that at least regular readers have noted that "About me" over there on the top of the right column, which says that I'm, among other things, "a democratic socialist/green." I've long favored the idea of the I Ching that, as one form puts it, "the only ultimate answer is that there is no other ultimate answer." I don't believe in true utopias and no society, no social or economic system, is perfect. But dammit, some are better than others and democratic socialism is better than what we have.

I dunno, maybe I should talk about it more. We'll see.

Footnote: ABC News also notes

a sign of how bad things have gotten: A drop of 128 points in the Dow Jones industrials was greeted with sighs of relief.... The week ended as the Dow's worst ever, with the index down an incredible 40.3 percent since its record close almost exactly one year earlier, on Oct. 9. 2007. ...

It was even worse overseas on Friday.

The UK's market dropped to it's lowest level in five years; Germany's market fell 7%, France's dropped nearly 8%, Japan's benchmark index fell almost 10% to a five-year low. Russia's market never even opened. Yes, it's bad and it's not over.