Thursday, October 16, 2008

Banks Seek Cushion: Bail Out Loans May Not Trickle down to Local Capital Projects Any Time Soon

Since the 9 banks receiving hundreds of millions of taxpayer bail out money from the federal government have seen their housing boom profits evaporate, they may sit on to the capital as a cushion against risk rather than deploying it immediately.

Does this mean that we won't see Metro capital budget improvements (to, for instance, sidewalks, parks, libraries) even with a bail out bill? It sounds like the money that the public is lending the banks isn't going to be getting back to the public any time soon.

UPDATE: Chris Kromm points out that the bail out loans are backed up by very little regulatory bite:
when it comes to run-away CEO pay, the Bush plan merely requires banks to avoid compensation deals that "encourage unnecessary and excessive risks that threaten the value of the financial institution."

But history shows these companies wouldn't know a "risk that threatens their value" if it came up and bit them.

The Bush proposal also doesn't stop the banks from siphoning off huge payments to shareholders (although dividends can't be increased). So when the banks bounce back, shareholders will get their money -- but the banks aren't required to renegotiate home mortgages, even though one out of six homeowners owe more than the value of their homes.

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