22 January 2009

Political Banking

I pointed out earlier that having the Government invest in banks was a bad way to spend the TARP money.

WSJ opined recently on how the feds have beaten up on Bank of America:

In October the U.S. Treasury had insisted on investing $15 billion in his bank. Come December, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke told him that Merrill had to be saved, and that BofA had to be the savior. Mr. Lewis said yesterday that the government was "firmly of the view" that canceling or delaying the Merrill deal might result in "serious systemic harm."

In other words, the feds believe that the way to calm financial markets is to force the nation's largest, and a heretofore healthy, bank to swallow toxic assets it didn't want. In return, yesterday the Treasury agreed to invest $20 billion in BofA, for which the government will receive preferred shares paying 8%. Treasury, the FDIC and the Fed will also partially insure $118 billion in troubled assets -- mostly Merrill's. In return for this downside protection, BofA will have to render unto Caesar another $4 billion of preferred stock plus warrants.

Sound familiar?

Just buy the troubled assets you took the money to buy and leave the banks alone!

1 comment:

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