The Wall Street Journal seemingly rounds up its entire political economy bureau (Deborah Solomon, Damien Paletta, Jon Hilsenrath and Aaron Lucchetti) to tell us that the Treasury Dept. will make $250 billion worth of equity investments in nine major banks. Treasury will also work with the Federal Reserve and Federal Deposit Insurance Corporation to lift the cap on deposit insurance and guarantee some types of bank lending. The $250 billion will come from the money Congress appropriated in the "bailout bill."

What’s incredible about this plan is that everyone thinks it’s great. It’s what all the European countries are doing. It’s apparently what Federal Reserve Chairman Ben Bernanke wanted to do all along. A libertarian economist interviewed said it was great. Two liberal economists interviewed also loved it.

So why wasn’t this Treasury Sec. Henry Paulson’s original plan? Paulson claims that he didn’t want to single out certain banks as failing. But wouldn’t he signal which financial institutions were in bad shape when he bought toxic mortgage securities from them? It’s amazing that Washington had a two-week debate on the plan to buy distressed assets and now that’s relegated to a secondary line of response.

Paulson should have put this on the table much sooner. But Congress shares the blame: lawmakers had a chance to constructively develop their own financial rescue plan but apparently lacked either the independent thinking or economic knowledge to focus on buying stakes in banks.-MB

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