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Crap Sandwich 2.0: A Trojan Horse for bank nationalization

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By Michelle Malkin  •  October 14, 2008 11:23 AM

Imagine if Treasury Secretary Hank Paulson had stood before the nation two weeks ago and called for the forced nationalization of the banking industry.

Think all those House Republicans who caved on Crap Sandwich 2.0 would have gone for this?

CS2.0 was a Trojan Horse. And now the army of government takeover artists are pouring out of the vehicle to claim their prize. Yeah, of course, we should worry about Barack Obama’s plans to “spread the wealth around.”

But like I said last week: Socialism is here and now.

If you don’t feel like throwing up today, you’re not paying attention:

U.S. Forces Nine Major Banks To Accept Partial Nationalization

The U.S. government is dramatically escalating its response to the financial crisis by planning to invest $250 billion in the country’s banks, forcing nine of the largest to accept a Treasury stake in what amounts to a partial nationalization.

…The Treasury Department’s decision to take equity stakes in banks represents a significant reversal, coming just weeks after Treasury Secretary Henry M. Paulson Jr. had opposed the idea. In a momentous meeting yesterday afternoon in Washington, Paulson, flanked by top financial regulators, told the executives of nine leading banks that they needed to participate in the program for the good of the national economy, two industry sources said on condition of anonymity because they were not authorized to speak publicly.

The government’s initiative, which was to be announced this morning before the markets open for New York trading, is part of a wider plan that goes beyond the $700 billion rescue package approved by Congress earlier this month. The Federal Deposit Insurance Corp. is also set to announce today the launch of an insurance fund to guarantee new issues of bank debt. It will provide unlimited deposit insurance for non-interest-bearing accounts, which are widely used by small businesses for payroll and other purposes.
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In pressing the bank executives to accept partial government ownership, Paulson’s message was clear: Though officially the program was voluntary, the banks had little choice in the matter. In exchange for giving the Treasury minority stakes, the nine firms would jointly receive an investment worth $125 billion. The government would make another $125 billion available for the next 30 days to thousands of other banks and thrifts across the country.

Federal officials set conditions, telling the banks they could not raise their dividends without government permission and could not offer their executives new retirement packages, though the old packages would remain intact.

I have previously documented and warned about Paulson’s persistent wrong-headedness and flip-flops over the last year.

Add this latest move to the list. As the WSJ notes, he was adamantly against injecting capital into financial institutions before he was for it.

Paulson in September:

“There were some that said we should just go and stick capital in the banks, put preferred stocks, stick capital in the banks. And that’s what you do when you have failures. You know, that’s what happened in Japan. That’s what happened in other spots. And we have dealt with some failures. And we’ve dealt with them where there’s capital. But we said, the right way to do this is not going around and using guarantees or injecting capital, and there’s been various proposals to do that, but to use market mechanisms.”

Paulson today:

“Today I am announcing that the Treasury will purchase equity stakes in a wide array of banks and thrifts. Government owning a stake in any private U.S. company is objectionable to most Americans – me included. … From the $700 billion financial rescue package, Treasury will make $250 billion in capital available to U.S. financial institutions in the form of preferred stock. … Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury, and raise additional private capital, so that they can make more loans to businesses and consumers across the nation.”

It would be funny if it weren’t so stomach-churning.

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More nausea: Bush promises that “government’s role will be limited and temporary.”

Double digits on the LMAO Richter Scale.

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Commenter kwill: “It sure is nice of Bush to pre-socialize our nation before it’s all handed over to Obama.”

Posted in: Subprime crisis