Now It’s Official: Treasury Can’t Influence How Banks Use Cash Infusion
by Tom on October 15, 2008
in Market Musings, banks
Treasury operatives have admitted, despite Henry Paulson’s protestations to the contrary, that the government can only hope for the best in how the nine banks given a collective $125 billion cash infusion early in the week make use of the loot:
Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.
via naked capitalism: Now It’s Official: Treasury Can’t Influence How Banks Use Cash Infusion
Okay, does this make anyone a bit concerned about our government? They just gave $125 Billion to 9 banks, took some stock in the banks and said that this is going to solve our problems.
Oh, but we can’t control what the banks are going to do with that $125 Billion? So the banks can either sit on the money to keep themselves stable or they can lend it out, it’s up to them?
I’m not sure that’s going to accomplish what we want it to…..
Tom
I think the idea is that our (the govt’s) position is dilutive enough so that the shareholders will demand a return on that equity which should cause the banks to make loans rather than earn a risk free 1.5%. If the dilution is large enough, it would also effect CEO options.
The last time the government forced the banks to lend money was when they passed the Community Reinvestment Act, forcing banks to lend to politically favored groups. We know how that worked out for the shareholders of America.