The pieces are starting to fall into place that will allow the US government to nationalize some of the largest money center banks later this year. According to the New York Times, White House and Treasury Department officials are considering converting the outstanding TARP loans into common stock of the nineteen largest banks in the country. The federal government would then become the largest shareholder in these institutions. This is a move that many feared would happen once the government doled out billions to these institutions. The government would be able to control these banks by stacking the boards with political allies who could control compensation, credit lines to customers, credit card policies, foreclosures, mergers and every other operational activity in these private enterprises. The problem is that the goalpost has moved and several banks have been rebuffed in their attempts to repay the loans back to the Treasury Department. That's because the minute they pay back the loans, the Treasury Department will lose its leverage over these companies. The timing of this announcement is interesting because some banks are starting to report a turnaround. Unfortunately, the so-called stress test imposed by the Treasury will be used as a tool to keep these banks under government control. Nothing good can come about from having the federal government control the private sector. That's socialism folks!
From the New York Times :
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
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