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All together now

The Baltimore Sun

The Brits had the right idea: Pump capital directly into a handful of big banks to get credit flowing. And the Bush administration deserves credit for moving in the same direction, despite complaints that it amounts to a partial government takeover of banks. That worry should be the least of our concerns right now. Infusing cash into troubled banks may be the quickest way to ease the credit crunch, which is threatening to stall the economy. The robust recovery of stock prices yesterday was a welcome sign that investors felt buoyed by the government's new thinking.

And that's the whole idea: Restore confidence in the troubled financial system and spur lending here and abroad. Weekend meetings in Washington and Paris ended with the U.S. and its European allies agreeing to work together to resolve the credit crisis that has crippled banks around the world. Great Britain led the way last week when officials there announced plans to pump $86 billion into six banks. In Europe, a unified approach is essential because the euro is the shared currency, borders are fluid and banks often do business in neighboring countries. The immediate need, economists here and abroad agree, is to grease the credit gears and get business operating again to minimize the long-term economic damage of the current credit crisis.

The Treasury Department's preparations to to follow Great Britain's lead reflect a necessary shift from its original plan to buy up banks' toxic assets - a complicated endeavor unlikely to produce swift relief from the credit freeze. A quick infusion of cash into key American banks in return for stock is more likely to inspire an early freeing of credit, most economists agree. The U.S. should be selective in the banks it chooses and the government should remain a minority investor, as Brookings Institution researchers Martin Neil Baily and Robert E. Litan recently noted. In addition, the banks should buy back the stock held by the government once the financial system rebounds. That would ensure that the government's intervention, while unusual, would be strictly in response to the emergency at hand and would also limit the costs of the rescue.

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