Let’s face it: We’re socialists! Bank bailouts to proceed

October 14, 2008 | Dean Takahashi | Comments |

The Treasury Department is expected to announce tomorrow that it will invest $250 billion in U.S. banks, according to the New York Times. It is also expected to announce it will guarantee loans for up to three years, a measure aimed at restoring lending between banks.

So much for laissez-faire capitalism. Goodbye to all that. And this is coming from Henry Paulson, President Bush’s man, who has now become the ultimate pragmatist. As they say, there are no atheists in foxholes. And it appears that there are no dyed-in-the-wool capitalists in the midst of a financial meltdown.

We’ll see if the measure will prop up stock markets for a second day. The Dow gained 936 points on Monday, the largest single-day gain since the 1930s. I never thought I’d see the day when the Bush Administration brought back echoes of Franklin D. Roosevelt. But these steps appear to be necessary to unstick the credit markets so that banks will start lending again.

For Republicans to do this is the ultimate irony, since they widely criticized Venezuelan president Hugo Chavez for nationalizing the oil industry. Indeed, Chavez is now mockingly calling Bush his socialist “comrade.”

Back in March, after the collapse of Bear Stearns, the bank bailout was still a matter for debate. But faced with the collapse of the economy, no one wants to go down as fiddling while Rome burned. Of course, this is not the same kind of socialism you’d find in other places. The die hards are calling it socialism for Wall Street, or corporate welfare. But it looks as if countries around the globe are converging on the same solution. No one wants to be the next Iceland. When they write the textbooks when this is all over, I’d like to see how they describe the U.S. economic system. Is it capitalist? Not at the moment.

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About the Author, Dean Takahashi

Dean is lead writer for GamesBeat at VentureBeat. He covers video games, security, chips and a variety of other subjects. Dean previously worked at the San Jose Mercury News, the Wall Street Journal, the Red Herring, the Los Angeles Times, the Orange County Register and the Dallas Times Herald. He is the author of two books, Opening the Xbox and the Xbox 360 Uncloaked. Follow him on Twitter at @deantak, and follow VentureBeat on Twitter at @venturebeat.

  • No Name
    I think the point is irrelevant when discussing capitalism. Any govt performs social services and to some degree are socialist. The government at times provides beneficial services as int he public sector and for private sector. The government invest heavily in military and research that has lead to commercialization of technology. Think NASA space program as a government program designed to commercialize technology with transistors, mirco waves, and software. NIH and the war on cancer contributed to the biotechnology industry.

    The govt with Freddie and Fannie has always implied a guarantee of underlying debt security with full faith of the US Govt. This was designed to ensure affordable loans by reducing risks inherent in issuance of loans. The GI Bill actually lead to the economic growth after WWII across nation by providing education and cheap home ownership. Nothing like having good citizens that own land to become even better constituents under the debt load and private property ownership.

    The main difference generally between Republican and Socialist Democrats, Republicans believe business owners contribute more to the economic development of the nation than others' contribute. Republicans want less government involved in their pursuit of capital and profits: regulations and taxes. Republicans want all the benefits and want to share less of the burden due to their contribution under a free and level playing field.

    But during times of crisis the government plays an important role for society in providing a stable system and investment for growth. The government is need in times of war and peace. And now, more than ever, the government is needed in times of financial crisis.

    I don't think you would find a Republican refusing any assistance form the government that would ensure their family lively hood and retirement (401k). Capitalism can be too tough for the staunch Republicans values and fee market unbearable to stomach as capital disappears from their coffers.
  • Diesel McFadden
    Socialists? Hardly.



    I'm assuming the rationale is that if it's the most obvious sweetest sweetest deal for the banks, the bank stocks will go rocket. Paulson bulletproofed 'em (we'll see in the long run). Right now, it looks like they got something more like debt (at 5%, behind current bondholders)-- no restrictions, no equity dilution, no dividend suspension, no change in management, no board seat, and a perfect credit score for the institution going forward. I'd say that's something for bankers to smile about.

    The 15% warrants are a way the papers can report that the government gets "upside", when relatively speaking, it's marginal.

    Compare to Warren Buffet's 10% preferred and 100% warrants, lockdown on executive share sales until they buy him out and of course, no 'full faith and credit' guarantee of all new debt going forward. But if the govt were too onerous, the good banks would complain and then it might cost paulson just as much to bail out the bad ones.

    The idea that this was "forced" on banks for the good of the country is 95% theater.
  • Alex
    I liked the UK approach to this mess and if Paulson and Bush would had the balls to do what the UK did in less than a week, we would'nt have been reading this today but three weeks ago and yes we are all socialist at heart.
  • I would think that being socialist for a year would not be too bad as long as the US received equity that they could later resell. The US could act as a really big institutional investor and rake it in Buffet style.

    Michael Kassing
    MarkTend.com (thinking about changing our name to MarkTend Bank and seeking a bailout)
  • It's a myth that we've *ever* had "laissez-faire capitalism". Markets have always had rules, going back to ancient times. The only question is what the rules are and who enforces them.
  • BaxterJ
    We already have a lot of socialist policies and socialist allies; what's the big deal?
    http://www.entertonement.com/collections/4696/H...
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