Remember when all the pundits were going around reassuring us that the $700 billion TARP plan wasn't a taxpayer handout? It was a loan, gosh darn it, and a high-interest one at that. The economy would stabilize, liquidity would return, and the money would be paid back -- with interest!Yeah, about that . . . The New York Times reports that "In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government's existing loans to the nation's 19 biggest banks into common stock."
That's right: What started out as loans will now be converted into equity stakes -- a long-term investment in the financial sector that will be subordinated to the companies' other debt obligations. If the sector is set to bounce back big, there could be some upside to this approach, but, of course, there's also tremendously more risk involved in being a stockholder than there is in being a creditor.
Worse, the government's status as a long-term shareholder with a position so large that it can't be easily liquidated means we'll have to continue to monitor these bozo boards of directors for egregious compensation practices and general chicanery for years to come. It also means that publicly traded banks will have major shareholders with interests far more complex than shareholder value.
All in all, it's probably a terrible idea. But the administration is faced with either doing this or heading back to Congress to ask for more money to bail out banks -- a prospect that would seem to have an uncertain fate given the populist outrage surrounding the already-dispersed bailout funds.
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Reader Comments (Page 1 of 1)
4-21-2009 @ 2:47PM
patrickvoltaggio said...
And of course this will go through, because the Obama Administration isn't going to ask for more money right now. Won't matter how badly we get screwed in the end, as long as the political fallout for the Democrats can be mitigated.
Obama knows if he can't prove in some way all this worked later on, the Republicans are going to hang it around his neck later.
It just gets better and better all the time....
4-21-2009 @ 4:13PM
Donovan said...
Time to get the amo and hip boots out folks.
The S%&t in Washington keeps geetin deeper by the day.
4-22-2009 @ 9:28AM
matt said...
I guess the scum in Washington wanted a bigger slice of the corruption pie they massaged into life.