The selling of Washington's new, improved rescue package contains more hype than a Billy Mays Mighty Putty infomercial, but the plan just may save the country. At least this week.
"The measures are not intended to take over the free market but to preserve it," President Bush said in the White House Rose Garden yesterday. A more Orwellian piece of doublespeak hasn't been heard since aviators talked about saving Vietnamese towns by destroying them.
The Treasury Department's "voluntary" capital-infusion program was forced on Citigroup, Bank of America and the rest at the end of a howitzer.
If it's true that "the overwhelming majority of banks in the United States are strong and well-capitalized," as the government stated, then the stock market fell 40 percent from a year ago for no reason. And we don't need a bailout.
Pay no attention to the men in front of the cameras. What matters is whether, behind the scenes, Washington's unbelievable money dump gives American banks and businesses the confidence to begin lending again to each other and consumers.
Yesterday, Wall Street voted "maybe," as stocks held more or less steady.
Puffery aside, this plan is better than its predecessors. Treasury Secretary Henry Paulson's first, three-page proposal, announced three weeks ago, was stillborn. Congress rejected a second scheme that included minimal oversight of a $700 billion slush fund for buying junk mortgages before changing its mind - and adding boondoggles for wooden-arrow manufacturers.
Markets still weren't satisfied. Seven-tenths of a trillion dollars is a lot, even in Washington. But it wasn't clear how buying mortgages would make Big Banking solvent and willing to lend. If Paulson purchased the trash at market, lenders wouldn't be capitalized any better than before.
The new plan is based on the legislation Congress passed two weeks ago. Sort of. After going on and on about buying toxic mortgages, the 451-page bill included a few words authorizing Paulson to buy "any other financial instrument" necessary to promote stability.
He's taking that and running with it. Under yesterday's deal, government will buy stakes in what could be thousands of banking companies in the form of preferred stock. It's putting a combined $50 billion into Citigroup and JPMorgan Chase alone and forcing the issue so no big bank is stigmatized by getting help while its peers stay independent.
The idea, favored by many economists from the start, is that with government ownership, banks will be more likely to revert to business as (more or less) usual. Being less likely to go bankrupt, they'll be less likely to hoard cash. Knowing others are less likely to go bankrupt, they'll be more willing to lend.
Britain initiated this kind of rescue last week. Other European nations soon signed on. The United States, which set the table for the corporate-welfare orgy by causing much of the mortgage problem, was the last to pull up a chair.
Other U.S. measures include a Federal Reserve plan to make short-term loans to U.S. corporations of all kinds. This should improve the tone of money-market mutual funds, where millions stash spare cash. (The government has also guaranteed money-market investments as of Sept. 19 for funds that participate.)
Washington will guarantee new bank debt for three years, another way to encourage lending and help financiers raise capital. And it forestalls a possible U.S. capital flight by matching an unlimited European guarantee on certain big business deposits.
Meanwhile, the Federal Reserve is running its usual fire drill, lowering interest rates and flooding the economy with cash. You can expect another taxpayer stimulus program after the election.
But to revive growth, banks must lend their new money. Businesses must invest it. Consumers must spend it.
"The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it," Paulson said yesterday.
Easier to wish than accomplish. The country is almost certainly amid a deepening recession, when lenders and consumers always trim their sails. Who has forgotten that a profligate Federal Reserve and overenthusiastic lending got us into this spot?
Maybe most importantly, the rescue package will erase few of the enormous consumer debts of the past eight years. That will hurt spending power.
Mighty Putty may be able to reassemble Humpty-Dumpty, but it'll be a long, complicated process.