The Wall Street Journal sounds a cautionary note on the new bank nationalization program:

The good news here is that Treasury Secretary Hank Paulson has at last moved from promises to action, and credit markets have responded positively. But this is also a very dangerous moment. The government has taken ownership stakes in the largest banks in the land. This extraordinary intervention is perilous — not least to the banks themselves — unless it is limited in scope and time. Mr. Paulson called the capital injection “distasteful” but unavoidable, and we can’t disagree. The trick is to ensure that neither he nor his successors develop a taste for politically directed credit.
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Meantime, for the program to do the most good, someone needs to make sure that this capital is used to shore up the larger system, not just any banks that wants it, while also protecting taxpayers. In that connection, Mr. Paulson still needs a heavyweight to run this thing. Acting Assistant Secretary Neel Kashkari seems smart and capable, but whether he can resist the imprecations of Congress to use this program to serve its parochial ends is another matter.

House Financial Services Chairman Barney Frank is on record as preferring financial institutions that he can bend to his will (see: Fannie Mae and Freddie Mac), and he can be nasty. It would be a disaster if Congress were able to bully banks into pursuing Congress’s priorities instead of rebuilding their balance sheets and exiting the program as quickly as possible.
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For those of us who believe in free markets, these interventions are unpleasant. These drastic steps might have been avoided had Treasury and the FDIC acted sooner, yet now they are necessary given the panic that threatens the larger economy. The goal should be to rebuild the financial system so Americans can once again trust their banks enough that government can then recede to its normal supervisory role. We are under no illusions that government will cede its new powers easily, but if it doesn’t the economic damage will be far greater than anything we’ve seen so far.

It seems the central questions for the next administration are two-fold. First, is there a definable end point to this extraordinary type of government intervention? And second, can it and the Democratic Congress resist the urge to pursue the very type of social and economic engineering — e.g. “affordable housing for the uncreditworthy” — which was at the root of this crisis? These are important questions which should be asked of both presidential nominees and immediately upon the nomination of the winner’s Treasury Secretary.

I am less optimistic than some that the federal government will pick up its “winnings” sooner rather than later and depart the game. The temptation to stay and meddle, regulate and control, is overwhelming among Democrats who will likely be in charge for the foreseeable future. Savvy conservatives might want to start putting together a framework for returning the financial sector to independence, and for imposing discipline on the government in its new role as super-shareholder. It likely won’t carry the day but it would mark the re-establishment of thoughtful, principled opposition — something which will be badly needed in the future.