MarketWatch: Bye-bye (original) bailout

[marmar]

MARKETWATCH FIRST TAKE
Bye-bye (original) bailout
Commentary: Treasury is going for equity stakes instead of asset buys

By MarketWatch

NEW YORK (MarketWatch) -- Remember the bitter fight in Congress over whether to spend $700 billion on bad assets at U.S. financial institutions? Turns out it may have been all for nothing.

That's because the Treasury Department has decided to take a different tack in battling the eroding banking system: more equity stakes. Having already committed $250 billion to nine big financial services companies, the bailout team led by Neel Kashkari is planning on buying stakes in the next tier of banks, according to a Bloomberg report Friday.

Banks eligible for the new round of funding are likely to be regional banks stung by mounting losses in their portfolios. By targeting weak institutions, the Treasury Department is shifting gears again. After dumping the plan to purchase assets, Treasury said it would make cash infusions in strong institutions.

Kashkari hinted at the shift Thursday when he testified before Congress that the "markets deteriorated much more quickly than we had expected."

As a result, Kashkari has been forced to find a way to get cash to banks fast. As the armored trucks pull up to the Treasury building, the staff inside is sifting through more than 100 bids to help manage the assets the plan was originally supposed to buy.

The state of events raises a fair question: By the time an asset management team is assembled, will there be any cash left to buy those collateralized mortgage obligations festering on balance sheets?

When the original bailout plan was passed, Congress gave Treasury Secretary Henry Paulson 45 days to come up with guidelines on how the $700 billion would be spent. By the time that deadline arrives next month, don't be surprised if Treasury doesn't come back with guidelines.

Rather, it will probably ask for more funds.

-- David Weidner


http://www.marketwatch.com/news/story/original-bailout-plan-slowly-disappearing/story.aspx?guid=%7B7B312C33%2D48B1%2D4800%2DBE49%2D4BF6173B7243%7D

[BelgianMadCow]

1. Buying a stake in banks actually makes it possible to also profit

of the eventual upturn..:shrug: It's what the banks in Europe have been doing.
The idea the bailout $ would be used for acquisitions is much more despicable.