First $250 billion of bailout to buy "banks"?
Posted October 14th, 2008 by RonShimshock
All the scare tactics of the Treasury Department and the Federal Reserve focused on needing to push the $700 billion through Congress to buy "distressed mortgages" and "ease the credit markets". So what has the US Government decided to use the first $250 billion of bailout money to purchase? Direct stock in banks:
However, as the financial crisis gained new intensity last week, sending U.S. stocks down by a record amount, the administration decided to shift focus and adopt a bolder program modeled more along the lines of bank rescue efforts being put together in Britain and other European countries.
So in addition to an insurance company (AIG), the American people now own savings and loans institutions too! Hooray! But the story gets better. Not only have we purchased bank stock, but the "banks" we are purchasing seem rather suspicious:
The nine initial banks participating are Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase, Bank of America Corp, including the soon-to-acquired Merrill Lynch, Citgroup Inc., Wells Fargo & Co, Bank of New York Mellon and State Street Corp.
First, I'm surprised to see Bank of New York Mellon and State Street Corp. on this list. I've not heard one mention of these two institutions until now. Since when have they started to have financial difficulties?
The two fun surprises on this list though are Goldman Sachs and Morgan Stanley. Less than 30 days ago, these two institutions were not even depository banks. The government allowed them to switch their status to "save them", and now they're at the front of the line for government handouts.
Amazingly swift and efficient how funds (and wealth) are being transferred from the American taxpayer to businesses which weren't even banks 30 days ago. These types of activities are going to have long-term reprecussions to the economic well-being of our country.
We're providing large sums of money to financial institutions without receiving anything in return -- no jobs created, no investment in the country's infrastructure, no reduction of foreclosures -- just plenty of money to buy stock in banks which probably would have failed otherwise. On top of it, we are effectively rewarding bad behavior. If financial institutions make mistakes or the wrong choices, they will be rewarded with government handouts.
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