If their toxic assets have really frozen lending, although not actually jeopardized their solvency, then the shareholders would have a great lawsuit against any bank executive who refused to act in the interest of the shareholders in order to preserve their own high pay. Such instances would presumably be rare, but could nonetheless provide a great source of free entertainment to a nation suffering through a severe downturn.
In short, there is good reason to believe that the Obama administration is trying to slip hundreds of billions of dollars to bank shareholders and their top management.
My comment on the bank bailouts: The bailouts seem to be the ultimate result of supply-side thinking. The thinking seems to be that since people and businesses are tapped out from so much borrowing and no longer credit-worthy enough to risk loaning money to we should give literally all the rest of the country’s money to those at the top of the finance food chain, and maybe they’ll make loans again anyway, and get the bad-loan-making system rolling again.
They say that people who want to buy cars can’t get loans. Well a credit-worthy buyer CAN get a loan. -I’LL- give a credit-worthy buyer a loan because then I can get a much higher return than I can get anywhere else. As long as I am sure I’ll be paid back.
They say people can’t buy houses. Well in the SF Bay Area the lowest-priced two-bedroom, one bath house (bad meighborhood, bars on the windows) requires an income of $10K/month to get a mortgage, now that they’re again requiring no more than 28% of income be spent on housing. Is the government’s idea that giving bad banks literally all the rest of our money will get them to give loans to people to take on mortgages at 50% of their income again?
And what about the GOOD banks, the ones that carefully managed their loan portfolios and didn’t get into trouble? Why doesn’t the government give cash to them, to help them give more good loans?