After watching the markets plunge and the credit freeze become glacial, Treasury Secretary Henry Paulson backed away from his scheme to rescue his investment banking colleagues by spending hundreds of billions of dollars buying up worthless credit derivatives. His new strategy: follow Britain’s lead and invest that same money--$250 billion for starters—into the banks as equity—specifically into the shares of nine of the country’s largest banks.

This might sound a little like socialism—the kind of mandatory nationalization that the US has devoted decades, and tens of billions of secret dollars to trying to undermine and attack when practiced by leaders in countries like Venezuela, Cuba, Chile or post-war Italy. But Paulson’s no red.

To avoid this government investment in the US banking industry being labeled “socialist,” Paulson and his fellow conspirator, Fed Chairman Ben Barnanke, are only buying non-voting shares of the banks. Get it? They’re giving hundreds of billions of our dollars to bankers in the form of ownership shares of these companies, but they aren’t asking for any say in the banks’ policies in return.

The rescued banks will be able to write trillions of dollars of loans against the new capital being injected into them courtesy of the American public, but they won’t have to lend any of it to us. They could, and most likely will, lend it to foreigners, or to anyone offering a higher interest rate on the money. They could pay it out in the form of bigger bonuses for executives. They could use it to buy up smaller competitors who aren’t getting a piece of the federal bailout. My guess is they’ll do all three.

The thing is, they can do whatever they damned please, because Uncle Sam is not asking for votes on the banks’ boards of directors in return for all that invested cash.

Why not?

Well, that would be socialism, right? It would amount to public ownership of the means of loan production. And we all know where that would lead: to decisions by bankers that might actually benefit the common good.

And we cannot have that! That’s not what America is about. America is about rugged capitalism, where hard-nosed executives make decisions based upon a rigorous cost-benefit analysis that magically ends up putting capital to its most productive use. That’s why we in America have, um, well, that’s why we have car companies that only produce giant, gas-guzzling SUV’s, muscle cars and trucks, cities that are entirely composed of hotels and casinos, houses that are big enough to hold four families, collapsing transit systems, failing schools, and a hollowed-out economy that hardly produces anything the rest of the world wants to buy.

Hmmmm. Maybe those free-market capitalists aren’t so good at making investment decisions after all—at least where the good of America and the American people are concerned.

I’m not saying that politicians would necessarily do a better job, but judging by the latest turn of events, which is to say the near-death experience for the global economy, I’d say that they could hardly do a worse job than the capitalist class has done. And maybe, if we could get our democratic system up and running again, with citizen/voters taking an active interest in what the political class is doing, maybe we the People could compel our politicians make some investment decisions for those banks that would be in our actual interest.

Maybe if we demanded that for our hard-earned money, we the People got voting rights on the banks’ boards of directors, we could see to it that those banks invested in the public good. Maybe we could get them to make loans for housing projects that made sense—for example near public transit, or for renovating housing in urban centers. Maybe we could get boards to agree to break up their banks so that they’d be more responsive to local needs, instead of always voting for acquisitions that have made banks bigger and less responsive. Maybe we could vote out the empire building executives, and replace them with more civic-minded folks who wanted to make their banks engines for local development.

But that sounds like those dreaded Euro-Socialists. The ones who’ve run their countries into the ground, you say?

Um. Have you been to Europe lately? Europeans are by most standards living better than we are. They don’t fret about health care, they have secure jobs, and if they lose a job, the state takes care of them, so they don’t have to worry about being put out on the street. Their cars are smaller than ours, but then, they don’t need to use them to get to work because they have excellent public transit systems, so they can get along fine with one, instead of two or three vehicles to a family. Oh, they get real vacations too, where they get to leave for a few weeks and have real down time with the family. Imagine that!

At this point, we don’t even know if Paulson’s latest boondoggle—throwing a quarter of a trillion dollars at a handful of humongous banks that are bigger than any bank should ever have been allowed to get—will work at unclogging the backed-up sewer that is the American financial system. Maybe before he blows too much of that money, we should demand that Congress stay his hand and say that for such equity stakes, he should be getting voting shares, putting public-minded members on those banks’ boards, and attaching rigorous strings to what can be done with our money.

Nationalization lite isn’t going to accomplish anything except to waste more of our money while enriching the same people who got us into this mess in the first place.

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