From A PLAN TO KILL BANKS TREASURY'S DEADLY 'KINDNESS'
"The new Treasury plan continues to put most of the emphasis on pushing banks to make more loans to over-indebted consumers, homeowners and firms. Unlike last year, however, Geithner now believes, "Our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible."The leverage idea has been around from the start of this mess. It is not a bad idea but the way it is being done now really is not leveraging anything.
That's a laudable goal - but contradictory. In reality, government capital replaces ("crowds out") private capital, leaving taxpayers holding a bigger and bigger bag. Call that nationalization by default. "
"TARP-afflicted firms will have to pay dividends to the Treasury for its preferred shares before any remaining crumbs fall to common shareholders. Treasury will be first to get any dividends or capital gains if the firm does well, and first to get repaid in the event of bankruptcy.The government should NEVER be this in bed with any company. If you bail them out that should be it. Give them the money and treat it as a loan, take common stock or just walk away. There is no risk to the government if they are first to get payed in all cases. In this case it was public outrage that there was no guarantee the money would be payed back. The people needed a clear explanation of what this was going to lead to "incremental nationalization of banks and insurance companies". The "people" where wrong. Why? They are not taught these things (I really wasn't either), NO one explains it to them(sometimes if you look around enough) and they are often used. Think for yourself (that's usually what I have to do).
Once a bank or insurance company gets in bed with the government, the property rights of that company's stockholders become uniquely insecure. When the government jumps into the cockpit, smart stockholders bail out.
And depressed stock prices deflate the banks' capital cushion, regardless of Treasury investments - making them more likely to fail and therefore less likely to lend. In other words, government "help" achieves the opposite of Geithner's declared goal."
It may be a good sized hill to understand the bank mess. The basic are not that hard. You don't need an economics degree, library of books or really a class on economics. The last one might help but is not necessary. A little logic and some quite time and you should be fine. If it still doesn't make sense. Get a book on logic.