Sheldon Richman rips the bank bailout at the American Conservative:
Here in the land of the theoretically free, as Mencken called America, the central government is about to become part-owner of the nine largest banks and many smaller ones, too. It will acquire dividend-paying preferred stock in return for “injecting” cash into the allegedly seized-up capital markets. (If they’re so frozen, why does Ditech offer me low-interest loans on television every night?) The government will also guarantee bank debt for three years. All this is said to be necessary because of the current economic turmoil. Summoning his best Orwellian tone, President Bush assured the country: “These measures are not intended to take over the free market, but to preserve it.” That’s reason enough to wonder if these people know what they are doing. Even Hugo Chavez knows better.
The $250 billion required to accomplish this extraordinary feat is to come from the $700 billion the supine Congress recently gave Treasury Secretary Henry Paulson, the former CEO of Goldman Sachs—one of the nine banks that will enjoy the largess. The rest of the money will be used to buy bank-held paper backed by sour mortgages and other “toxic” instruments that have stopped producing income. Congress doesn’t have $700 billion; it’s running a half-trillion-dollar deficit already. But that’s okay. The government can, presumably, borrow the money—driving up interest rates, including for mortgages, oops!—and pay the debt later in depreciated dollars. This is assured because the Federal Reserve is creating hundreds of billions of dollars out of thin air in order to rebuild confidence in the economy. Yes, you read that right.