Saturday, January 17, 2009

A Quick Thought - Pt. 2

Just following up on my previous hypothesis that the bailout will end up in the nationalization of the industries that recieved any funding:

With two of the nation's largest banks buckling under yet another round of
huge losses, the incoming administration of Barack Obama and the Federal Reserve
are suddenly dealing with banks that are "too big to fail" and yet unable to
function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large
that they make it almost mathematically impossible for the government to inject
enough capital without taking a majority stake or at least squeezing out
existing shareholders.

And the new ground rules laid down by Obama's top economic advisers for
the second half of the $700 billion bailout fund, as explained in a letter
submitted to Congress on Thursday, call for the government to play an increasing
role in the major activities of the banks, from the dividends they pay to
shareholders to the amount they can pay executives.

For more on this:

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