U.S. Treasury bank bailout shuns banks that need cash most

October 29, 2008 by · Leave a Comment
Filed under: Policy News 

If you are going to re-capitalize the banking system, this strategy does work.  The problem is we are using the money to strengthen the banks that are basically insolvent.  We should be making them open up the balance-sheets and they ones who made the bad bets should go to the wayside and ones that did not get into this mess to the point of insolvency, should be rewarded with our funds.  This is totally backwards, just like this who process.

News:

The U.S. government’s $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.

“This has the unintended effect of making the strong stronger and the weak weaker,” said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. “Banks that are getting bad exams and are under intense pressure from regulators won’t be successful in applying.”

The government buying spree has so far targeted two dozen regional lenders. One, PNC Financial Services Group Inc., immediately bought a competitor, National City Corp. Another, Saigon National Bank, had almost four times the minimum level of capital before selling a $1.2 million stake.     

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