Are we witnessing the erosion of capitalism, or its salvation?
That question is swirling around the federal government's latest proposed intervention in the private financial markets since Treasury Secretary Henry M. Paulson announced Friday a plan to take equity stakes in banks as a quick and efficient way to pump them with new capital.
Combined with the government's takeover last month of the mortgage companies Fannie Mae and Freddie Mac and its huge ownership stake in the crippled insurance company American International Group, the bank plan represents perhaps the largest federal intervention in private enterprise since President Truman's attempt to nationalize the steel industry to avert a strike in 1952 -- a move blocked by the Supreme Court.
The idea of taking direct stakes in financial institutions was adopted last week by Britain, which will in effect partly nationalize banks with as much as $87 billion in capital infusions and an additional $350 billion available for short-term loans. Some of the country's biggest banks have signed up, including Barclays and the Royal Bank of Scotland.
The Italian government has also authorized a recapitalization package to be enacted if the need arises. Germany, with Europe's biggest economy, has resisted such plans, but there were reports Saturday that Chancellor Angela Merkel might unveil a recapitalization plan as early as today.
A consensus seemed to be emerging among leaders of the world's top economies meeting Saturday in Washington that whatever economic or political differences existed among them, all countries must act aggressively and in concert in guaranteeing deposits in their banks and pumping government capital into faltering institutions to help ease the global crisis.
A stubborn seize-up of bank lending to businesses, individuals and each other has sharply heightened the prospects of a deep and lengthy recession in the U.S. and abroad.
The fact that devoted supporters of laissez-faire economics are falling in line to bless the aggressive foray into free enterprise by the U.S. government is a sign of the seriousness of the crisis.
"I'm against the government owning anything . . . ," Stanford University finance professor Jonathan Berk said. "That said, buying an equity stake may be the cheapest way" to achieve a banking recovery.
But others believe that scrapping free-market principles in a crisis atmosphere may doom the banking industry to a future of inefficiency.
