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Birth of a boondoggle

Posted at 1:59 PM on October 27, 2008 by Bob Collins (7 Comments)

On CNBC this morning, Mark Haines asked, "do any of you remember politicians saying they needed to pass the $700 billion bailout to give money to banks to buy other banks?"

Well, no, but we didn't hear that financial firms needed the money to increase year-end bonuses, either, but Time says that's happening too.

"It's not the government's money directly, but in the case of Morgan Stanley and Goldman Sachs, they were facing a severe crunch," says analyst Brad Hintz, who covers financial firms at Sanford Bernstein, and is a former chief financial officer of Lehman Brothers. "Had it not been for the government's help in refinancing their debt they may not have had the cash to pay bonuses." When asked, the U.S. Treasury would not comment directly on Wall Street's bonus plans, though spokeswoman Brookly McLaughlin did reiterate the bailout's intent: "There is broad agreement that the Treasury's capital purchase program was intended to strengthen the financial system and increase lending," she said.

As for the taxpayer money being needed to unthaw the credit markets, various reports have made it clear that banks are sitting on the money instead.

Comments (7)

What I don't understand about all the bank handouts is that the govt didn't stipulate how the money was to be used, that is, banks had to lend it, not sit on it. Isn't that's what they've done with the British bank bailout? But here we're still letting banks laissez-faire and the govt is just crossing its fingers hoping banks willl behave against their interests. How is that helping Mainstreet?

When will everyday taxpayers ever get rid of the sign on their backs saying "kick me"?

Posted by sm | October 27, 2008 2:24 PM

Hmmm... TPM linked to the NYT article too... I hope the coverage on this picks up if the banks continue to screw with us.

Posted by gml4 | October 27, 2008 2:47 PM

Wow - Really the greedy banks that made bad choices to line their pockets are doing it again? Color me surprised.

Posted by Brian Hanf | October 27, 2008 3:06 PM

So instead of the government buying the bad loans, they are giving money to strong banks to buy weak banks who gave out the bad loans. The weak banks are underpriced so the strong banks feel like they are getting a great deal. Hopefully we will get a great deal too when we sell the newly appreciated shares when the strong banks make lots of money.

Posted by bigalmn | October 27, 2008 3:17 PM

I was unclear if the government was actually getting equity in the banks

Posted by MR | October 27, 2008 3:19 PM

It's beginning to look like the taxpayer has been had.

Posted by Jim!!! | October 27, 2008 5:20 PM

Did somebody say "bill of goods?"

Like Brian above, I am not surprised, but I -am- deeply disheartened. Now what do we do about it?

Posted by Michelle | October 27, 2008 6:32 PM