Can taxpayers bank on the new plan?

Ashley Milne-Tyte Oct 14, 2008
HTML EMBED:
COPY

Can taxpayers bank on the new plan?

Ashley Milne-Tyte Oct 14, 2008
HTML EMBED:
COPY

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.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.