Treasury to covertly nationalize troubled banks?

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A big damn smile may have just crossed Paul Krugman’s fuzzy face.  After weeks of lamenting the poor decisions of the Obama Treasury Department, new information from the New York Times suggests that the money used to shore up the banking giants during the bailout may soon be converted to common stocks.

Fuzzy Wuzzy.

Fuzzy Wuzzy.

The effect of such an action is consequential for anyone tired of giving free public money to private banks.  Essentially, this course will nationalize several of the banks because the United States government (taxpayers) will become the majority shareholder.   Apparently, the U.S. government has already arranged this type of relationship with Citibank.

Before this decision was made, a great number of tax dollars were given to the troubled banks without any strings attached.  Instead of buying up all the troubled assets (securities that can be difficult to value) of each bank, we would get common stock in the company.

This could be good news and could be bad.  If the stock price absolutely tanks (which the government could actually be anticipating), then the tax payers could end up suffering.  However, as a majority shareholder, the government will be on the board of directors for the company and will be able to influence decisions that are made regarding our investments.  We already know that the troubled assets are next to worthless, so if we can get a decent deal with the stock conversion plan, we may end up getting a lot of our money back.

When the credit lines open up again, we can expect the United States government to sell taxpayer shares in each bank.  Hell, we could even make money on this.

Expect this to be a rallying cry for the “Obama = Socialist” crowd.  But it’s a hell of a lot better than handing your federal taxes to the nearest AIG executive and expecting nothing in return.

RWP Rating: Bizarre

Full Story: New York Times

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