US May Take Equity Stakes in Banks

The Obama administration has worried that Congress will block any future bailouts. One way to solve that problem? Cut Congress out of the equation. Here’s The New York Times: “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.” The government stress tests are expected to show that some banks, including Bank of America, need billions more. “The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.” Critics allege the plan would be backdoor nationalization, since the government would become the largest shareholder in several banks.