Henry Paulson saves economy?
Filed Under (Politics & Economy) by Stiffler on 09-10-2008
Tagged Under : 700 Billion, banks, bill seidman, economy, financial institutions, henry paulson, tarp, treasury secretary, troubled asset relief fund
Well word is out Treasury secretary Henry Paulson has said the first batch of money to be released from the 700 Billion bail out, will go towards major financial institutions. Although at first glance this may seem like an ideal situation we need to really question the governments involvement in free markets. Facing what seems to be the onslaught of a disastrous recession banks and financial institutions have been more reluctant to lend money between each other for fear one or the other may go the way of the dinosaurs. As an investor the thought of having the government diluting share price is not exactly ideal. Under the current Troubled Asset Relief Program (TARP) banks are not forced to sell any stock to the government. In order for the banks to sell bad mortgages debt back to the government, grants the right to the government to purchase some amount of stock.
Bill Seidman, former chairman of the Federal Deposit Insurance Corp has been quoted as saying “The only reason they’re putting money in those banks and the banks are accepting is that the banks will go broke without it. They’re not taking this because they love the government. They’re taking it because the regulator is saying, ‘You don’t have enough capital. If you don’t get more capital, we’re going to close you down”.
Government regulations has forced banks and financial institutions to write down the value of investments back by mortgages. By doing so assets held are now based on falling house prices, not necessarily condusive of what the assets are really worth. Looks like the relief fund and Paulson’s plan is only going to make the select few happy.
