WSJ: The US Taking Equity Positions In Banks

Posted by Justin McHood on October 13th, 2008

By now, you may have heard that the US Government is going to start taking equity positions in many of the nations largest banks and the Nationalization of the US Banking System is becoming official.

As covered in the Wall Street Journal:

To kick off Tuesday’s expected announcement, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. — including the soon-to-be acquired Merrill Lynch — Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.

Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government’s response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.

My question is this:

Suppose (for a moment) that the US Government’s actions result in an all positive outcome — meaning, banks who are hurting now get much-needed liquidity in return for giving up an equity position and as a result return to risk-adjusted-rate-of-return profitability levels.

What will the US Government do with their new-found return on investment?

Save Social Security from it’s impending bankruptcy?

Create more entitlement programs?

Spend it on more taxpayer funded junkets?

Use any surplus to pay down the national debt and hope the national debt clock starts working again?

Invest it “wisely” in companies who are too big to fail?

And now just for fun - see the top 10 US Government “wastes” and my personal favorite (#1) “the missing $25 Billion” .

Many of you that we have spoken with over the last month or so have asked our opinion on what all of the recent market changes mean to America’s Future.

I confess openly and in public — the scale of the current economic problem is something that I cannot exactly wrap my head entirely around, but it appears as if capitalism is being replaced by a dose of socialism.

Do they have mortgages in a socialistic society? I will have to look into that and get back to you.



October 13, 2008 | Filed Under Miscellaneous Fun 

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