Bailout Update: Surprise, Banks Hoarding Taxpayer Cash!

Financial Pride & Prejudice

Financial Pride & Prejudice

In one of the most unshocking revelations of 2008, Congress once again has managed to exercise their lack of judgment at our expense by forking over $700 billion of our money to give to banks.

Free market experts, let me ask you a question: If you’re cash position is struggling mightily at the hands of defaulting debt instruments and unknown risks, and someone offers you a pile of cash to help ballast your listing vessel, what would you do with it?

Would you continue ‘business as usual’ giving loans away in the same manner that got you into this balance sheet nightmare? Of course, not.

It turns out, neither are the banks. They’re hoarding and merging with on our time and we have nothing to show for it except to foot the bill.

Thank you, Congress, for your lack of political will to stand up to a plan that we knew would fail. Glad you didn’t listen to us, since you know so much more than we do. I thought you Democrats knew how to stand up to President Bush? Oh wait, his Treasury Secretary is one of your guys.

Via the Associated Press:

The infusion of federal money is to rebuild banks’ battered capital reserves so the institutions would feel comfortable resuming more normal lending practices. But that confidence was undercut somewhat when reports surfaced that bankers might use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock on Friday and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion.

There is little federal officials can do about it. There is no language in the bailout bill that specifically obligates banks receiving money to increase their loans. Officials had argued that attaching strings to the capital-infusion program would discourage financial institutions from participating.

Cute. I realize that merging to some degree and if done correctly will help the situation. But the struggle I have is that now we have so much capital tied up in a handful of banks that are essentially ‘too big to fail’ now that the government has set this nasty bailout precedent. The bottom here is that the taxpayers, in my opinion, are on the hook for bailing out banks that still do not want to lend like we need them to and instead would prefer to consolidate and become so huge that their failure in the future would plunge us right back into this scenario.

First rule of the free-market: market players always act based upon their own rational self-interests. Of course, it’s no surprise the liberal Democrats (and their redistributive talking Presidential nominee) in Washington do not understand this most basic of economic principles. The real shock is that a lot of supposedly conservative Republicans do not get it either.

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