Bush: No Gov't Takeovers Via Bailout

President Bush delivers remarks on the economy at the U.S. Chamber of Commerce in Washington, Friday, Oct. 17, 2008. (AP Photo/Susan Walsh)
AP Photo/Susan Walsh
President George W. Bush says the United States' "serious financial crisis" has moved beyond Wall Street. But he says Americans can be confident government actions will set things right over time.

Mr. Bush, offering his reassurances in a speech to the U.S. Chamber of Commerce Friday, said the rescue moves are "big enough and bold enough to work."

But he also spoke to critics who believe the infusion of $700 billion of public money into private businesses, such as through the purchase of stock in struggling financial institutions, represents a nationalization of banks and other private companies. "This is simply not the case," Mr. Bush said.

He said the program was designed to ensure that the government's participation was limited in size and duration, and it will invest only in those companies that choose to accept the government's investment.

As further assurance that the federal government will not intrude on business, he said, "The government will not exercise control over any private firm. Federal officers will not have a seat around your local bank's boardroom table. Shares owned by the government will have voting rights that can be used only to protect the taxpayers' investment, not to direct the firm's operations.

"The government intervention is not a government takeover," Mr. Bush said. "Its purpose is not to weaken the free market; it is to preserve the free market."

As further reassurance, he declared, "We must not blur the line between the government and the private sector."

He said the costly measures being implemented by the federal government were taken as a last resort, and that if the government had not acted, "the hole in our financial system would have grown larger. Families and firms would have had an even tougher time getting loans and ultimately the government would have been forced to respond with even more drastic and costly measures later on."

He said that companies would have incentives to replace the taxpayers' investment with private capital once markets stabilize.

The president alluded to past examples where the government took partial ownership of private companies and banks, such as during the savings & loan collapse. "In every case, the government relinquished its ownership stake after the crisis ended, and they will do so again.

He also spoke of how the U.S. is working with European nations to resolve what has become a global crisis. He said, "We're determined to overcome this challenge together."

In conclusion, Mr. Bush said the next president must ensure that new laws and regulations aimed at protecting investors do not limit the ability of American firms to raise capital or put U.S. companies and workers at a competitive disadvantage. He also warned that the financial crisis - and the huge cost of the federal government's investment, only some of which might be paid back through dividends and stock sell-offs - might serve as an excuse to raise taxes, "which would only make the problem worse."

Battling Worst Financial Crisis In Decades

Earlier this week, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership stakes, something that hasn't been done since the Great Depression of the 1930s. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers.

Mr. Bush and his top economic aides have repeatedly asked Americans to be patient and give the government's relief efforts time to work.

The president cautioned that it will take time to thaw out the frozen credit system so that people and businesses can get the loans they need to get the economy moving.

"The actions will take more time to have their full impact," he said this morning. "It took to a while for the credit system to freeze up, and it will take a time to thaw."

Democrats on Capitol Hill, though, insist another round of economic stimulus is needed.

So far this year, 15 banks have failed, compared with three last year. And Wall Street's five biggest investment firms were swallowed by other companies, filed bankruptcy or converted themselves into commercial banks to weather the financial storm.

At the same time of the Treasury announcement, the Federal Deposit Insurance Corp. said it would temporarily guarantee new issues of bank debt - fully protecting the money even if the institution fails.

The FDIC also said it would provide unlimited deposit insurance for non-interest bearing accounts, which are mainly used by small businesses to cover payrolls and other expenses. Frequently, these accounts exceed the current $250,000 insurance limit, so the expanded insurance should discourage nervous companies from pulling their money out.

Last week, the Fed and the world's other major central banks joined forces to slice interest rates, the first coordinated action of that kind in the Fed's history. The United States and other top economic powers adopted a five-point action plan last week and pledged to do all they can to stem the crisis.

Even with so many unprecedented steps taken, Wall Street has convulsed. On Thursday, the Dow Jones industrials finished up 401.35 points, after falling 380 points early in the session. A day earlier, the Dow fell a staggering 733 points. The index started the week with a record-shattering 936-point gain.

Fed Chairman Ben Bernanke warned this week that even if financial markets were to stabilize, the economy would not quickly snap back to good health.

Unemployment - now at 6.1 percent - could hit 7.5 percent or higher by next year. Many analysts predict the economy will shrink later this year and early next year, meeting the classic definition of a recession. Some believe the economy already jolted into reverse during the July-to-September quarter.

Americans are feeling strained as their paychecks shrink and their savings shrivel. That's causing shoppers to cut back, one of the reasons the economy is losing traction. Economic slowdowns overseas, meanwhile, are expected to crimp demand for U.S. exports, which has been a main force keeping the economy afloat.