Partial Bank Ownership Plan Gains Traction

Oct. 12, 2008 -- Former Treasury Secs. James Baker and Lawrence Summers spoke out this morning on the need for the federal government to assume partial ownership of American banks.

"This is bigger than the private sector can fix by itself. Government is going to have to restore financial stability to our markets and to our economy," Baker said in an exclusive "This Week" interview with George Stephanopoulos.

"And frankly, I think they have... taken some pretty good steps already."

Earlier in the week, Treasury Secretary Henry Paulson proposed that the federal government inject money directly into the banks and assume partial ownership.

"We've got a problem of trust. Financial institutions trusting each other. The whole economy trusting the government policy framework. And any time you have a problem of trust, you got to deal with it in a very aggressive way," Summers explained when asked about the need for a global coordinated action plan.

"The core problem today, of assurance that your money in a financial institution is safe. The problem that banks are short of capital and need capital from some source, and if it has to be the government, that's better than their not having capital."

In a separate interview, Minority Whip Rep. Roy Blunt, D-Mo., and the chair of the House Financial Services Committee, Rep. Barney Frank, R-Mass., agreed with Paulson's plan.

"I agree with that as one of the tools that the secretary can use," Blunt said. "We created a package for him that gives him lots of options. And I talked with him on Thursday and I believe he is going to use all of those options, including some sort of guarantee so that the people that own these assets can reach a floor buying these assets at the right level and some direct involvement."

"I think that's very important. And I agree with what Roy said," Frank added.

"We took a proposal from the secretary, and frankly, it was the Congress that explicitly added the right to buy the equity. Frankly, the Treasury was not too crazy about that. We did it both because we thought it would be economically useful, as it now is, to try and get healthy banks healthier, but also for taxpayer protection."

Frank and Blunt also responded to Sen. John McCain's mortgage proposal this week, criticizing his plan to refinance distressed mortgages.

"Not at face value, we're not going to buy up the mortgages at face value, because the people who lent the money shouldn't get out of this hole," Frank said. "But if they are willing to take a lesser amount from the Treasury, we can then avoid the foreclosures."

The minority whip agreed. "Somebody needs to take the loss here, and it needs to be the person that had the bad judgment of making that loan, of buying those poorly put-together mortgage-backed securities. There's going to be loss here, and it shouldn't be loss borne by the taxpayer. Barney's absolutely right," Blunt said.

But Baker backed McCain when asked about his mortgage plan. "I think it's a good proposal. It's certainly a very good political proposal, and I think it could be a good substantive proposal, provided the mechanics of how you get there are delineated a bit more."

NOTE: In his discussion of the fund coordinated by former Presidents George H.W. Bush and Bill Clinton to provide hurricane relief, Baker misstated the Web site to visit to learn more and to make a contribution toward relief work. The correct site is http://www.bushclintoncoastalfund.org/.