Several major U.S. banks are leaning toward spending a portion of their federal rescue money on acquiring other financial firms rather than for issuing new loans, the primary purpose of the government's $250 billion initiative to invest in banks.
There is a growing consensus among Treasury and other federal officials that allowing healthy banks to use the money to acquire banks in jeopardy of failing could stabilize the economy and bolster confidence in banks. This could also save money for the Federal Deposit Insurance Corp.Healthy banks?? We were bailing out healthy banks?? WTF?
Treasury Secretary Henry M. Paulson Jr. confirmed yesterday that some banks may use the capital they receive through the Treasury program to buy weaker banks and that this could benefit the financial system.In an appearance on "Charlie Rose," Paulson said acquisitions were "not the driver behind this program. The driver is to have our . . . healthy banks be well-capitalized so they can play the role they need to play for our country right now."
When the Treasury's program was announced last week, some bank executives said they didn't need the money and resented the federal intrusion. But in a number of earnings calls and interviews in recent days, several bank executives were more receptive.I thought Paulson was supposed to drive hard bargains with troubled banks, rather than offering deals to healthy banks that were too good to pass up.
The federal deal is relatively sweet in financial terms -- it requires banks to pay 5 percent interest annually on the investment over the first five years -- and some bankers said they would not pass it up.
And of course, there's the "too big to fail" problem:
According to some analysts, an excess of mergers and acquisitions in the financial sector over the past decade created too many institutions deemed "too big too fail," meaning that the government would be obliged to rescue them if they faltered. Now, some worry the government's program will continue to drive that trend.I think I have at least a sketchy understanding of what this is all about, but the "bailout" is making absolutely no sense to me. Except for the possibility that it's really just one more way for the Bushies to throw money at the rich. I hate to be cynical about it, but I feel like I'm running out of alternatives.
"I think it's a very serious problem, and I think it's part of a general failure to enforce antitrust laws in the last few years," Nobel Prize-winning economist Joseph Stiglitz said at a hearing of the House Financial Services Committee yesterday. "So one of the things I think is part of your exit strategy is that we have to think about breaking up some of the big banks," added Stiglitz, a Columbia University professor.