The infusion of federal money is to rebuild banks' battered capital reserves so the institutions would feel comfortable resuming more normal lending practices. But that confidence was undercut somewhat when reports surfaced that bankers might use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock on Friday and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion.
There is little federal officials can do about it. There is no language in the bailout bill that specifically obligates banks receiving money to increase their loans. Officials had argued that attaching strings to the capital-infusion program would discourage financial institutions from participating.
So while Barney Frank worries about CEO bonuses creating perverse incentives and insisting that there are more rich people out there to tax, it seems that he missed the fact that his plan was giving away billions of dollars without any strings attached.
Not that I want the Federal government to act any smarter when it's nationalizing large segments of the economy. Just pointing out that it can't even get it right when it tries.