Expanded Bailout Differs From Original Plan
MELISSA BLOCK, host:
Now, some analysis of our top story on the financial crisis. President Bush announced this morning that the government will buy equity in private banks. NPR's senior news analyst Daniel Schorr has some thoughts on how we got to this point.
DANIEL SCHORR: It wasn't that no one foresaw financial trouble ahead. It was that those who did see it coming were mainly outside an administration hooked on deregulation. Even as the bailouts had begun, a global conference months in the making was held on September 8th at the University of Virginia, convened by former Treasury secretary John Snow and named for former Internal Revenue commissioner Mortimer Caplin. It was dedicated to fixing a broken financial system and building a new financial architecture. Full disclosure, Caplin is a friend of mine.
Now, the new financial architecture is being thrown together in an atmosphere of turmoil as President Bush announces a coordinated seven-nation program to strengthen financial institutions. For two weeks, the administration, having desperately importuned Congress for $700 billion, was scratching its head about how to use the money. Its original idea was to buy troubled securities linked to mortgages, but in the end, priority was given to the European approach of injecting capital directly into banks.
The White House must have had to swallow hard at this partial nationalization of private banks. A whole conservative culture of keeping hands off private enterprise was going down the tube. The reaction of Wall Street and foreign exchanges reflected a sense that something was happening finally that might begin to restore public confidence. From the start, this meltdown has reflected a crisis of confidence.
And so today, in the Rose Garden where he's made so many appearances lately, President Bush announced what he called the G7 action plan to strengthen banks across the country. Neil Kashkari, the Treasury Department's bailout czar, now expresses confidence that we are building the foundation for a strong, decisive, and effective program. That program rests on direct intervention in the banking system that would have seemed inconceivable only a few weeks ago. It's been said that administration policy seeks to privatize gains and socialize losses. But this may be part of what the Virginia global summit called the new financial architecture. This is Daniel Schorr.
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