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Originally posted by anachryon
Thanks to the bailout, banks can also receive Fed money by trading shares of their stock for cash. This was initially touted as a means for banks to get money for them to lend out to the general public, but very quickly it became obvious that the banks were hoarding the money or using it to buy other banks.
As long as the money sits there in the banks, it's not a huge deal. The instant it starts moving into the day to day economy - via loans, interest paid, hiring, building new bank branches, etc - though, the economy starts to inflate.
Some objectors might call the federal government’s deep involvement in the banking sector paternalistic. If so, that would explain why the government is essentially handing out dowries to companies that take troubled banks off their hands.
The U.S. Treasury has reached into its bailout program, TARP, to gift PNC Financial Services Group with $7.7 billion that helped the Pittsburgh bank buy National City for $5.58 billion. PNC even won a 7% discount to Thursday’s stock price in the bidding for NatCity, which had struggled all year to find a buyer.
And J.P. Morgan Chase hasn’t ruled out using its $25 billion government windfall for acquisitions, either. On J.P. Morgan’s recent third-quarter earnings call, CEO Jamie Dimon went to pains to explain that the bank didn’t need the money, and he said he would put it to the uses that would most help shareholders. Of course, Dimon already gave at the office with the government-engineered acquisitions of both Bear Stearns and Washington Mutual.
Originally posted by Keyhole
So, if this is going to hurt the economy more, why hasn't Congress or Paulson ( ) put a stipulation in "the bailout" that says that this money is to be kept in their banking systems, not to be used to "buy" other banks or any other companies?
Neel Kashkari, head of the Treasury's financial stability program, told Dodd's committee this past week that there are few strings attached to the capital-infusion program because too many rules would discourage financial institutions from participating.