| | Whoa, guys. The article doesn't say what kind of stock, but nonvoting stock is usually preferred stock. I favor that over buying distressed mortgage-backed assets, because it has less risk to taxpayers. I said so here. Richard Posner of the University of Chicago also favors that over buying distressed mortgage-backed assets here. To the extent the government buys preferred stock instead of distressed mortgage-backed assets, the deal is more a "workout" than a "bailout."
The article says the stock purchases "would be in addition to the main thrust of the $700 billion rescue effort, which is to buy bad mortgages and other distressed assets from financial institutions." When I first read that, it bothered me. Hopefully, it does not mean the stock purchases will be in addition to the $700 billion, but rather a part of the $700 billion.
Did you know that the early U.S. government owned bank stocks?
[Alexander] Hamilton wanted to establish a central bank modeled on the Bank of England. The government would own 20% of the stock, have two seats on the board, and the right to inspect the books at any time. But, like the Bank of England then, it would otherwise be owned by its stockholders.
To Jefferson, who may not have understood the concept of central banking, Hamilton's idea was what today might be called "a giveaway to the rich." He fought it tooth and nail, but Hamilton won the battle and the Bank of the United States was established in 1792. It was a big success and its stockholders did very well. It also provided the country with a regular money supply with its own banknotes, and a coherent, disciplined banking system.
But as the Federalists lost power and the Jeffersonians became the dominant party, the bank's charter was not renewed in 1811. The near-disaster of the War of 1812 caused President James Madison to realize the virtues of a central bank and a second bank was established in 1816. link
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