President Bush's announcement that the government will spend $250 billion to buy shares in nine major banks -- in effect, partially nationalizing them -- has drawn a lot of hand-wringing among the nation's media and political class. A front-page story in last Friday's Washington Post summed up the fears: "The End of American Capitalism?"
But looking at the fine print, it's clear Wall Street doesn't have to worry about Hugo Chavez setting up shop in lower Manhattan anytime soon. In several key ways, the latest bailout deal isn't so much an overhaul of the economy as a quick-fix that promises business as usual.
Consider, for example, the terms of the Bush "nationalization." The federal government -- and by extension, U.S. taxpayers -- are supposedly buying shares of leading financial institutions. But as Robert Weismann notes at the Multinational Monitor, the public isn't getting any say over how these institutions are run:
[W]hile aggressive by the standards of two months ago, the most high-profile of these moves -- government acquisition of shares in the private banking system -- is a strange kind of "partial nationalization," if it should be called that at all. [...]
But the Treasury proposal specifies that the government shares in the banks will be non-voting. And there appear to be only the most minimal requirements imposed on participating banks.
So, the government may be obtaining a modest ownership stake in the banks, but no control over their operations.
The lack of public standards is clear. For example, when it comes to run-away CEO pay, the Bush plan merely requires banks to avoid compensation deals that "encourage unnecessary and excessive risks that threaten the value of the financial institution."
But history shows these companies wouldn't know a "risk that threatens their value" if it came up and bit them.
The Bush proposal also doesn't stop the banks from siphoning off huge payments to shareholders (although dividends can't be increased). So when the banks bounce back, shareholders will get their money -- but the banks aren't required to renegotiate home mortgages, even though one out of six homeowners owe more than the value of their homes.
Overall, Weismann argues, the "nationalization" scheme seems more intent on freezing current problems in place rather than fixing them:
"The government's role will be limited and temporary," President Bush said in announcing [the] package. "These measures are not intended to take over the free market, but to preserve it."
But it makes no sense to talk about the free market in such circumstances. [...] If the U.S. and other governments are to take expanded roles in the world economy -- as they must, and will -- then the public must demand something more than efforts to preserve the current system.
The current system brought on the financial meltdown and the worsening global recession. As the government intervenes in the economy on behalf of the public, it must reshape economic institutions to advance broad public objectives, not the parochial concerns of the Wall Street and corporate elite.