Bankruptcy

Another Perspective on Fed?s Purchase of Banks

By J. Michael McBride

All of these new and increasingly interventionist acts by the federal government will have multiple unintended consequences. Here is an article which discusses some of the risks and rewards of the newest proposal to come from Washington, whereby the federal government buys equity in not only unhealthy banks, but healthy ones. “By buying stakes directly, the government would immediately bolster banks’ capital foundations. But such a move — as the details of how it will be done are still sketchy — carries its own set of risks….In just the past few weeks, the contraction of lending has accelerated. Banks are unwilling to lend to each other out of fears that the borrower may be the next institution to fail. As the global lending machinery slows, the economy slows with it….The idea is not without risks. If banks turn over stock to the government, it dilutes the value of shares already held by investors. Lowering value of already-battered bank stocks could put greater pressure on lending.”

Here is the link to this article:
http://www.msnbc.msn.com/id/27101763

Michael

Full post as published by Texas Lawyer Blog on October 09, 2008 (boomark / email).