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TARP Skews Market in Favor of Otherwise Failed Banks
By James West
MidasLetter.com
Friday, May 22, 2009
The sinister side of the government bailout programs such as the Temporary Liquidity Guarantee Program, Toxic Asset Relief Program (TARP), and the Term Asset-Backed Securities Loan Facility (TALF) are manifesting themselves in unfair advantages for rescued banks over more solvent financial institutions.
Banks such as Bank of America, Capital One and Citigroup have all been able to tap capital markets for the additional funds required by the U.S. Federal Reserve's stress test program results as a result of the perception on the part of investors that "too big to fail" means "this investment in guaranteed".
The result is that weakly managed institutions who are not only recklessly managed, but also largely responsible for the overleveraging of their own Tier 1 capital that caused them to become insolvent absent the bailouts, are favored over more strongly managed, smaller financial institutions.
The longer term fallout from such socialist preservation of weaker, bigger institutions that can literally paralyze the global financial system if compromised remains to be seen, but instinctively its quite obvious to industry insiders that it can't be good.
The former administrator of the $700 billion bank rescue program Neil Kashkari said in a speech yesterday that firms recognized as too big to fail have a defacto advantage over smaller competitors because they can raise more money more cheaply.
The uneven landscape means banks who are denied access to TARP funds become targets for buyouts with taxpayer dollars as word leaks in regards to their insolvency. The stage is arguably set for hostile takeovers of solvent banks by government backed weak predators through coordinated undermining of capitalization efforts on the part of target banks.
The nine largest banks in the United States were the beneficiaries of the $125 billion TARP which began shortly after the fall of Lehman Brothers in September 2008.
SOURCE: http://www.midasletter.com/news/09052203_TARP-skews-market-in-favor-of-otherwise-failed-banks.php
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Bank Bailouts
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