Can taxpayers bank on the new plan?
People walking in front of Wall Street
TEXT OF INTERVIEW
Bill Radke: U.S. Treasury Secretary Henry Paulson says the idea of government owning a stake in a private company -- well, he finds it objectionable. And yet, the alternative is worse:
Henry Paulson: Without confidence that their most basic financial needs will be met, Americans lose confidence in their economy, and this is unacceptable.
This morning, Paulson outlined the much-anticipated plan to spend $250 billion to take an equity stake in nine of America's financial giants. The preferred stock will pay the government a 5 percent dividend that goes up to 9 percent after five years.
Fed chairman Ben Bernanke described step two:
Ben Bernanke: The guarantee of senior debt of all FDIC depository institutions and their holding companies will restore the confidence of these institutions' creditors and reinvigorate the crucial inter-bank lending markets.
Oh, and the Fed will be the buyer of last resort for commercial paper. So the U.S. taxpayer is in the banking business. Marketplace's Ashley Milne-Tyte is in New York following your investment.
Ashley Milne-Tyte: The idea is that the U.S. taxpayer eventually gets their money back.
Kevin Logan is senior market economist at Dresdner Kleinwort. He says the Treasury has no desire to be a long-term investor in banks:
Kevin Logan: And if in a year or two -- or perhaps three -- if the banks find that they're profitable again, then they could pay back the Treasury by buying back the preferred shares.
Logan says there's always a chance the plan might fail. He says everyone hopes banks will start reaping profits again before long. Still, there's a chance those mortgage-backed securities could produce massive losses. Even so, Logan says the plan's worth implementing in order to stabilize the whole financial system.
In New York, I'm Ashley Milne-Tyte for Marketplace.