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Minimizing the Damage

Posted By Conn Carroll On October 23, 2008 @ 10:42 am In Economics | Comments Disabled

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Under normal circumstances, the very concept of direct government purchase of bank stock of any type would be unthinkable and unacceptable. But it seems that to large extent the hand of U.S. policymakers was forced by overseas governments that provided similar capital programs to their banks. If the U.S. government had not established this program, foreign banks would have been seen as safer, and ours would have been at a disadvantage. Subsequently, large depositors and investors would have moved their money to the foreign banks.

Now that the U.S. Treasury has committed us to this policy, we must minimize the danger that the government might control or unduly influence the management decisions of private banks through partial ownership in them. A banking system free from such government control is an essential part of a free market economy. Heritage fellow David John identifies the following boundaries that must not be crossed [1]:

  • It Must Be Temporary
  • There Must Be No Attempt to Influence Bank Lending Policies
  • Any Government Investments Should Include Only Nonvoting Preferred Stock
  • It Must Be Voluntary
  • Any Restrictions on Executive Pay Must Be Strictly Limited
  • Taxpayers Should Share in Any Profits

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2008/10/23/minimizing-the-damage/

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[1] identifies the following boundaries that must not be crossed: http://www.heritage.org/Research/Economy/wm2110.cfm

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