Alabama banking official questions federal bail out - WSFA.com Montgomery Alabama news.

Alabama banking official questions federal bail out

John Harrison John Harrison

By Mark Bullock - bio | email

WASHINGTON, D.C. (WSFA) - The federal government revealed Tuesday how its massive financial sector rescue plan will work. Not everybody thinks it's the right way to go.

The bail out includes $700 billion in tax money. $250 billion of that will now go directly to struggling banks. Some experts question whether the government is getting too involved.

The U.S. treasury secretary admits it wasn't an ideal solution. The government will buy stock in Citi Group, Wells Fargo, Bank of America and six other large banks. Thousands of smaller banks that qualify will also benefit.

"Government owning a stake in any private U.S. company is objectionable to most Americans, me included," said Secretary Henry Paulson. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."

"It came as quite a shock to me," said Alabama Banking Department Director John Harrison.

Harrison says it's unlikely Alabama banks will see any of the tax payer money. And he wonders if this kind of government intervention will help boost the overall economy.

"I'm not sure some of the banks they're dealing with really needed any help," Harrison said. "This is strictly a Wall Street fix and it doesn't get down to Main Street."

The idea is for the banks to buy back their stock after a few years. But in the short term, the additional capital will allow them to make more loans.

"This new capital will help struggling banks fill the hole created during the financial crisis," President Bush said Tuesday.

The government also announced short-term financing from the Federal Reserve starting in two weeks. And the FDIC will insure non-interest bearing accounts.

Market reaction to the plan was mixed. The Dow Jones industrial average closed down 76 points Tuesday -- far from Monday's 900-point rally.

While banks here at home don't expect much of a boost, they may not be the ones who need it. Harrison says no bank in Alabama has failed in more than two decades. And while a few could use some extra capital, Harrison says future failures are unlikely.

The bank rescue plan will be a top priority for President Bush this weekend. He has invited France's president and the head of the European Union to Camp David to talk about coordinating their efforts.

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