WASHINGTON -- When the sun set on the nation's capital Tuesday, it marked the end of one era in the nation's political economy and the beginning of another. American taxpayers, the proverbial Joe Six-Pack and Jane Wine-Box of campaign lore, will become partial owners of the nation's nine leading banks, with more to come.

The Bush administration's announcement that it would take ownership stakes in private banks marked a momentous shift away from a 30-year effort to get government out of business' way and opened the door to a new era of government engagement with business in ways that are only starting to unfold.

Although it's a move toward socialism, it's far short of nationalization. While government is now to be a partial owner of banks, it isn't taking over their management. The joint ownership is expected to be temporary, perhaps three to five years, and once the banks regain stability and profitability, the government intends to sell its shares in the hope of earning taxpayers a profit.

Rather than a wholesale switch away from free-market capitalism, what's going on is a progression of the mixed democracy-capitalism that's been evolving at least since Franklin D. Roosevelt's New Deal of the 1930s. The evolution this time is toward stronger government and more regulated markets, whereas since the start of the Reagan Revolution in 1981, it has been the opposite.

STRANGE BEDFELLOWS

Now government and bankers will be limited partners -- and strange bedfellows.

On Tuesday, the Bush administration tapped big financial players to oversee the rescue of their own industry. Pacific Investment Management Co., the world's biggest bond fund, was chosen to administer the Federal Reserve's new lending to corporate America, which will bypass banks.

Bank of New York Mellon, one of the institutions in which the government will take an equity stake, was selected as the custodian for the purchase of distressed assets from banks, and will evaluate the quality of these assets and set their prices.

THE PRICE TAG

When the federal government seized savings and loans in the 1980s or when it took bank stakes during the Great Depression of the 1930s, it did so because they were insolvent. Tuesday's partial bank purchases were instead an attempt to thaw credit markets that had frozen amid a loss of confidence in lending of all sorts. It was a bid to change market psychology.

''Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence to our financial system,'' Treasury Secretary Henry Paulson said in announcing plans to invest $125 billion in nine U.S. banks: Bank of America, including Merrill Lynch separately, as well as Citigroup, Bank of New York Mellon, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

The Treasury will buy $25 billion in preferred stock in Bank of America -- including Merrill Lynch -- as well as J.P. Morgan and Citigroup; $20 billion to $25 billion in Wells Fargo; $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street.

Paulson set aside another $125 billion to invest in hundreds, perhaps thousands, of other banks through mid-November. All told, more than a third of the $700 billion that Congress authorized weeks ago to purchase distressed assets from banks now will be used to give banks the equivalent of a flu shot against a nasty financial virus.

Join the discussion

Note: If this is your first time using our NEW commenting system, you will have to LOG OUT and then LOG BACK IN.

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. In order to post comments, you must be a registered user of MiamiHerald.com. Your username will show along with the comments you post. Thank you for taking the time to offer your thoughts.

     Showing: Oldest first Newest first Most-recommended first Least-recommended first

@Nyx.AuthorDisplayName@ wrote on @Nyx.PostedAtTime@:

@Nyx.CommentBody@

@Nyx.Recommender@ @Nyx.AbuseReporter@