Getting punked on the bank bailout

Remember how we’re shoring up weaknesses in our economy by bailing out failed banks and doling out $700+ billion to prevent further failures? Well, it looks like all that money isn’t going to help us average folk anytime soon.

Part of the problem with the economy is the credit crisis. Banks have lost so much capital on paper that they are unable to lend money to businesses, home buyers or other banks. Lending like this – when done responsibly – helps our economy grow.

So, to fix that problem Treasury Secretary Paulson has decided to “inject” banks with capital, which would conceivably allow them to begin lending more. However, JPMorgan Chase has other ideas for the $25 billion they were just given by the taxpayers:

What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.

So, instead of using that $25 billion to help ease the credit crunch, instead JPMorgan Chase will use it to buyout other banks. Great.

Then there’s AIG, which spectacularly flamed recently. Apparently the taxpayer rescue isn’t going to stop them from letting deals that are vital to keeping public transportation fall apart:

AIG had guaranteed deals between transit agencies and banks under which the banks made upfront payments that the agencies agreed to repay over time. But AIG’s financial problems have invalidated the company’s guarantees, putting the deals in technical default and allowing the banks to ask for all their money at once.

In Metro’s case, the regional transit agency could face up to $400 million in payments, the system’s chief financial officer, Carol Kissal, said in an interview yesterday. One bank, KBC Group of Belgium, has told Metro that it needs to pay $43 million by next week. Metro officials confirmed the details but declined to name the bank.

Transit agencies have met with the Treasury Department to request federal help. The government could back the deals instead of AIG, or it could change tax policy to help the banks and keep them from demanding payments.

You’d think giving AIG $100+ billion would guarantee these sorts of things wouldn’t happen…

Flickr photo of Wall Street Bull by Christopher Chan

3 Comments

  1. Ian

    Man I feel like the government should lay down some punitive measures for this crap.

  2. Andrea

    Would it surprise you to know that JP Morgan was the creator of Credit Default Swaps in the mid 1990’s? Thought not…

  3. Chris

    At least JPMorgan didn’t go crazy with them and destroy their own business like all these other banks.