Will the Fed bail out foreign banks?

Did the bailouts of our country's investment banks and insurance industry go far enough? It's possible that the Treasury Department doesn't think so. According to Politico, this may not be the end of the Federal bailouts, and it's very possible that the Fed may even bail out foreign banks.

In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

This is Bush-style globalism run amok, even if it is done in haste and urgency. Not only has the Bush Administration bobbled the ball in reestablishing itself as the Policeman of the World, now it wants to underwrite the world's banks?

Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos, calling the coverage of foreign-based banks "a distinction without a difference to the American people."

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

Paulson points out that it's not enough to protect American institutions, but also to protect foreign institutions that have fallen into the same trap as our own banks. If Paulson thinks that Americans won't appreciate this distinction or who owns the financial institution being bailed out, then he's got another thing coming.

Paulson said on This Week with George Stephanopoulos:

"[R]emember, this is about protecting the American people and protecting the taxpayers. and the American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."

It's my feeling that this will create severe backlash. I think the American people understand that fixing the insolubility of the American banking industry is a bitter pill. We'd all much rather let the free markets work, but we bailed these American institutions to stave off a possible economic meltdown and possible depression. Meanwhile, we've got American corporations, like the automobile industry, is in great need of financial assistance to stay afloat. Do we really want to keep afloat foreign banking interests when the backbone of American industry is about to crumble?

The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have has “its headquarters in the United States.” That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS. The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.

But a Treasury “Fact Sheet” released at 7:15 last night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: “Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.”

This is worrisome to me. It almost seems like Paulson knows another possible meltdown is on its way, otherwise, why would they bother to amend the legislative outline.

This is very worrisome indeed.