Government Seeks to Make Banks Less Profitable As It Acquires Large Stake in Them


The Obama administration is planning on stretching out the TARP funds by converting the government’s existing loans to financial institutions into common stock, which would, according to the Times today, “increase the capital of big banks by more than $100 billion,” without the government having to hand over any more cash, i.e., go back to Congress and ask for additional funds, which would cause another round of unsettling government histrionics and, possibly, cause Michael Capuano’s head to explode in a mess of blood and feathers. But as this guy points out, the accounting behind this idea is largely illusory: The conversion doesn’t really translate into the banks getting more money. Plus, it will make the government a shareholder in a number of large financial institutions, which seems like a conflict of interest, considering the plans the administration has for changing the culture of said institutions.

For instance: Yesterday on Meet the Press, Obama financial adviser Larry Summers said they planned to crack down on abusive lending practices by credit-card companies. “We need to do things to stop the marketing of credit in ways that addict people to it,” he said. Yesterday, when we were the people getting charged the exorbitant fees, we totally applauded that. But this morning, as shareholders, we felt a little bit differently. Isn’t charging exorbitant fees how places like Citigroup make their money? Why would they want to stop that? What good is making us a party to these people if we’re not going to get a piece of the action? Damn it, Summers. This is all very confusing. Next thing we know, we’ll be leaving ourselves threatening voice mails and repossessing our own stuff.

U.S. May Convert Banks’ Bailouts to Equity Share [NYT]
Battle of the Gouge [NYP]