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Tuesday, October 28, 2008

Government Heavy-Handed Intervention

A $700 Billion Pandora’s Box
By Eddie Griffin

Tuesday, October 28, 2008

Bush administration puts pressure on banks

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

"The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money," Perino said.


How can you command chickens when to lay eggs? Editor asks.

Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the Bush administration plans to dole out $250 billion to banks in return for partial ownership. The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks this week. Another $125 billion will go to other banks.

Treasury Secretary Henry Paulson has said the money would be used by banks to rebuild their reserves so that they would resume more normal lending practices — a crucial ingredient to breaking through a debilitating credit clog that is hurting the national economy and threatens to bring about a deep recession. More recently, though, Paulson said the money could be used by banks to buy other banks to make them both stronger to weather the financial storms.

On Friday, PNC Financial Services Group Inc. said it had received $7.7 billion in cash through selling stock to the government under the bailout program. PNC then said it planned to buy National City Corp. for $5.58 billion.

The tricky part is this: “to rebuild their reserves”. Before a bank can rebuild its reserves, it must restore its balance sheet by paying off debt.

If preferred stock value is recuperated in the transaction, then preferred shareholders recoup their loss before anyone else, unless there is a government stipulation otherwise.

HENCE NOT the henhouse is raided by the fox, the taxpayer bailouts out Wall Street first, even before considering the average ordinary American homeowners at risk.

Reported by Eddie Griffin (BASG)

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