Government Bailout Money Being Used To Buy More Banks

by | Nov 1, 2008 | Asset Management

One of the side stories coming out of the bank bailout has been this: some banks are actually using the money — to buy other banks!

My first reaction when seeing this headline, was “why can’t these banks do what we ask them to do?”

I did read a story recently where some banks that received government bailout money are “still” planning on handing out giant-sized year-end bonuses to executives.  What’s up with that?  I hope there is more to that story, because I think that’s the wrong message to be sending — getting taxpayer-funded bailout money, and then turning around paying fat bonuses.

But the original story — banks using bailout money to buy other banks — actually has a happy ending.  Some of the banks that are being bought would have collapsed, and that would then fall under the jurisdiction of the FDIC.  And that is an organization that is stretched to the max.  When JP Morgan took over Washington Mutual, it did not cost taxpayers anything.

And some troubled banks are being swallowed up at gigantic discounts.  Problem loans are being dealt with, and mortgages are being “re-worked.”  All the while, these banks are being bought at severely discounted prices — and without direct intervention from a government agency.

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