A different approach to the bailout arrives

As I’ve said before, I’m not an economist. So when, during the bailout hearings and after, I thought Henry Paulson, Ben Bernanke, and gang were going about things in an odd way, well, I figured that they know better than I. And so I didn’t say anything here. But I did talk about my concerns with friends. Here’s an email message I sent on the afternoon of September 25th:

Date: Thu, 25 Sep 2008 15:39:38 -0400
From: Barry Leiba
To: [redacted]
Subject: Re: $700 billion?

What I don’t get is why they want to do it this way, by buying up dubious assets of failed companies. Here: when you invest, is that what you do? Or do you invest in companies that are successful, or that you think soon will be? I’m not an economist, and maybe there’s a really glaring reason not to handle it like this, but I wonder why, instead of allocating $700B as they’re proposing, they don’t allocate, say, half that, and spend it on investments in the companies that’ve been doing things right, encouraging others to invest in them and encouraging them to further prosper and to fill the gap left by the dead ones.

Why not?

Barry

Of course, that was just a silly idea.

But, wait. Um... what are they doing now?:

Two weeks after persuading Congress to let it spend $700 billion to buy distressed securities tied to mortgages, the Bush administration has put that idea aside in favor of a new approach that would have the government inject capital directly into the nation’s banks — in effect, partially nationalizing the industry.

As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.

The Treasury Department’s surprising turnaround on the issue of buying stock in banks, which has now become its primary focus, has raised questions about whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance.

It has also raised questions about whether the administration’s deep philosophical aversion to government ownership in private companies hindered its ability to look at all options for stabilizing the markets.

OK, so... if I thought of that two weeks ago, surely someone in the upper-echelon financial circles, someone looking into how to fix this mess, someone advising the administration and the legislators also thought of it.

Why did it take another two weeks for it to surface?