What You CAN Do About the Economic Crisis

What to do when banks don't trust other banks enough to lend one another money? Give them $250 billion and a strict command: "Spend it!" That was agenda item number one for Treasury Secretary Henry Paulson yesterday as he and President Bush announced another major injection of cash to help lubricate the world's stuck credit markets.

"The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it," Mr. Paulson said, according to The New York Times.

The comment seemed strange to us. If Messrs. Paulson and Bush are so intent on the banks spending taxpayer money instead of packing it under mattresses, perhaps they should write such language into the contract instead of asking – begging? – for it in a press conference.

But in other ways, buried deep inside the torrent of proposals rapidly remaking the credit and investment worlds are some prudent insurance policies that protect the big new investors (namely, U.S. taxpayers). One of the niftier examples is the fed's purchase of bank stocks. The contract guarantees a dividend of five percent, rising to nine percent by year five of the contract (we wish we could get a company to give us such a promise).

The stocks also come with "warrants" worth 15 percent of the stock's face value. If the stock price goes up, so does the value of the warrant. If stock prices drop, the warrant becomes null and void. (Again, we wish we had such a clause on our 401(K) investments last week).

The upshot is that, faced with a virtual collapse of the credit markets, the U.S. government joined with European countries and Japan to provide the largest injection of taxpayer cash into the financial markets ever. The reaction of the markets appears mixed so far – after recording the largest jump in value in its history on Monday, the Dow Jones industrial average slipped somewhat by Tuesday afternoon.

Here's what you can do about all of this:

• Nothing. Henry Paulson and the chiefs of other major world banks swept down from the heavens yesterday to announce partial taxpayer takeover of the credit and financial markets. At a time like this, all we mortals can do is settle into the couch with a nice bowl of ice cream.
• Read. Once the ice cream headache wears off, it'll be the perfect time for an informal class on how credit really works. Simply reading newspapers and their online equivalents every day right now will teach you more about Wall Street, regulators and credit than the first semester of business school.
• Get involved. Voter opposition to the $700 Billion Wall Street bailout sunk the first two proposals, and appears likely to sink a few members of Congress this election. Once you've had your snack and your daily reading, you'll be prepared to write your representatives and make sure they vote for your interests.