Monday, April 20, 2009

A Back door to Nationalization

A Headline from the NY Times, U.S. may convert bank bailouts to common stock:

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

Any person who is worried about undo political influencing decisions about who should and should not be extended credit should shutter at the thought, even implication of bank nationalization. The Obama administration, and the President himself have tried to stay away from any talk of nationalizing the banks as the political hit that will arise from a power grab of this magnitude would sink even his ratings. How does the government "vote" at shareholder meetings? Will congress now be the largest shareholder, pushing aside private capital? These are serious questions that need to be addressed.

Read the entire article here

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