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The bailout gets too big

Posted Nov 03 2008, 07:12 AM by Douglas McIntyre
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The Treasury may have to hire circus clowns and insurance salesmen to keep track of all the U.S. banks it is bailing out. Now that the really large money center and regional banks have the cash, new applications for a piece of the pie are flooding through the door.

Each bank that gets capital is probably going to have to give up some ownership as part of the Paulson plan. It will require a lot of people to track the loans and equity stakes that go with them, probably many more than Treasury has on hand.

According to The Wall Street Journal, "Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks." It may take the next president two terms in office to process all of those requests.

It is probably a bad idea to let all of those smaller financial firms apply. If the law allows them to ask for money, they should probably be turned down. The tremendous trouble in the credit system is with large global money center banks which have substantial amounts of bad assets on their books. If the lending among them and to their customers frees up, the entire system ought to see improved liquidity. If they hoard their capital, lending from small banks is not going to make a difference.

The other reason every bank on every street corner in the U.S. should no get Treasury money is that it defeats the Darwinian benefit of every economic downturn. The weak entities get washed out of the system through bankruptcy or buyout. Contravening the natural attrition of firms that cannot stand on their own would only mean they may fail further down the road, which would slow the eventual recovery of the financial system.

Loaning money to a great many banks is almost like loaning money to none.It only forestalls the day that the malignancy in the body of the financial world gets excised.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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Comments

 

Why bother giving money to banks? they as usual will take there big cut right off

the top before any money will go to good loans, these banks are like pirates we'll

get nothing back in a million years.

If you want to bring the economy back stop letting banks give mortgage loans

that aren't FIXED RATE with the knowledge of taxes that go with property owner-

ship upfront, NO SMALL PRINT to misslead BUYERS.........

Are you serious?  We want Darwin to work on small banks but not big banks?  You are insane, let Darwin's theories take place on all of them!!

" The extent of the bailout is getting ridiculous.  While it is a nice gesture to assist ailing financial institutions, the problem is when it ends.  The system of giving handouts seems arbitrary and does not assist the average Joe and Jane person out there directly. "

-  http://www.USANews.TV  

As any real specific information about the bail-out has been sketchy at best and at worst ever-changing, and it seems that as new threats arise the plan morphs, giving me the sense that we are looking at panic stricken policy makers with way too much money.  If you were to take 700 billion, divide it equally across the tax-paying population, institute price controls and nationalize the banks - you got problem solved. The whole loan liquidity thing is now moot.

At first read, I though maybe you were joking.  Absolutely no sense to your article.  You're saying spend unlimited money bailing out the institutions that are responsible for our problems so they can continue to loot and plunder our nations wealth??   While letting the smaller banks that did nothing wrong die because of a bad economy created by bad policies of the few greedy and corrupt??   Then you mention the Darwinian benefit??????  Sounds like anti-Darwin to me.  We should let all the big players who made the mistakes pay for their mistakes by going out of business.  The smaller stronger ones will then prosper from the lost business of the those that were poorly managed.  Thats true capitalism, not BushPaulsonBernankeGreenspansavetherich misguided politics.

Here is a thought. I've asked 100 of my co-worker what they would do with $150,000 per working spouse and home owner. That's $300,000 per house hold if married and $150,000 if single. All said the first thing they would do would be to pay off their homes. Second their debt and third would be to buy and new car. I think it's a win win for everyone. the banks have their home loans paid, high credit card debt is gone and everyone buys a new car, which helps the auto companys. I said working households because we are the ones who, through taxes, will pay it all back. Just a thought.

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