Help the U.S. Economy not the. Banks: Create a Federally Run, National Investment Bank

the It gets better and better -- that is, if you are a banker on Main Street or Wall Street. The Times reports tonight that the US Treasury is poised to implement The Elmendorf Plan, following Gordon Brown's formula for bailing out the High Street banks, which Brad De Long explains as follows:

Have the government directly invest in and take an equity stake in troubled banks, thus reassuring their depositors and creditors that they are sound. The banks will then be able to profit by buying up distressed securities--hence raising their prices--and by directly lending to companies that will then be able to hire more workers, and depression will be averted.

What galls me is that this salvation of the banks, the socialization of the risks of the very well heeled, saves their butts, and while it renews their ability to extend credit to Main Street, which is important, why should the banks and bankers become the disproportionate beneficiaries of this infusion of capital which will renew their capacity to lend? That the taxpayers will get a proportionate equity share in these banks proportionate to the infusion of capital is certainly a good thing, but it seems to me that the banks and bankers will benefit proportionately much more than we the people, than we the taxpayers.

A fairer approach by far would not inject capital into the banks but would create a new, public entity, a "Bank of the United States," with a number of regional or state branches which would become the source of the investment capital which the economy badly needs. Why should the government step in to firm up the very banks that got us into this mess, and why should we make investments in these banks that will redound to the benefit of the bank's shareholders and executives?

A new federally owned public investment bank, with tight controls on executive compensation, and with a mandate to spur green technologies, with a commitment to the common weal and to a reasonable return for the taxpayer on these investments seems like the way to go. Indeed we could create a number of such banks, each of which would focus on spurring investment within an individual industry.

But, the main point is that a move like this by the Treasury would resolve the liquidity crisis, would help to spur economic growth and would serve the public good without benefiting those who should be punished for having driven the economy into the ground while profiting all the way.