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Monday, October 13, 2008

Implications of Government's Action Are Serious

By David Asman

FOXBusiness

Scoreboard loves rallies, so we cheer on the rally we had today. But if this rally is going to be something you can hang a recovery on, we have to be clear about a few things that are still very unclear.

First, if the government buying up bank shares is temporary, when and how is the government going to get out? I’ve seen government takeovers of banks up close, most notably in Mexico in the 1980s, and they always start as “temporary.” But once government bureaucrats get used to loaning money to themselves, they have to be dragged away kicking and screaming, like pulling a brat away from the candy store.

Then there’s the question of who will control the taxpayers’ interest in the banks. Hank Paulson claims it’ll be his group of experts at Treasury who will handle all this. But isn’t Congress going to want to play a role in this? And if Congress does manage to get involved with the banks, so much for Paulson’s promise to keep government a silent partner. When was the last time Chris Dodd and Barney Frank were silent about anything? More than likely, Congress will start interfering with the direction and management of a lot of banks we become partners with -- just like they interfered with Fannie Mae (FNM) -- and we all remember how successful that partnership was!

Today’s market rally is great. But tomorrow’s exit from nationalized banking is a lot more important for our future.

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