Congress to banks: Eat your veggies

Source: Reuters

The Senate Banking Committee took a Treasury Department official to task for committing $250 billion of the $700 bailout money to buy stakes in banks without getting any guarantees that those firms wouldn’t pocket the cash or use it for acquisitions.

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Schumer had welcomed the Treasury’s decision earlier this month to shift the focus from buying troubled assets to directly injecting capital in troubled firms, but like many of his colleagues thought there should have been more strings attached.

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Kashkari also said it would be unwise to block banks from using taxpayers’ money to acquire weaker rivals.

“If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served,” he said.

Read more: http://blogs.reuters.com/macroscope/2008/10/23/congress-to-banks-eat-your-veggies/

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Ahh, no.

So the purpose of Treasury's capital injection is to create MORE consolidation of banks and institutions "too large to fail" instead of breaking them up as Nobel Prize-winning economist Steglitz and others say is necessary to prevent a repeat need for a bailout in future?!!

BTW, I've been very impressed w/ how Sen. Schumer, from the home of Wall St., has been responding to the banking crisis. All along he pushed for more oversight, reduced amounts, and a slower, piecemeal implementation, in order to give the new President Obama a Treasury that still had some borrowing power left for economic stimulus programs. He even got into a shouting match w/Paulson during the final negotiations on the bill to retain a partial spend, then evaluate before committing more, mode. This no-oversight bill which some Dems preferred to avoid getting their hands dirty, was not his fault.