The Financial Bailout Fiasco

bailoutsleuth.com
Treasury Secretary Henry M. Paulson Jr. confirmed Wednesday what was already becoming apparent -- that the government will not use any of its $700 billion financial-industry bailout fund to buy toxic assets from banks and other institutions.

Those purchases were the basis of the Troubled Asset Relief Program that Congress approved last month. The argument was that removing distressed assets such as mortgage-backed securities from the books of those companies would ease fears about their solvency, free up capital, encourage lending between companies and thaw a frozen credit market.

But in a quick turnabout, the Treasury Department has decided that making direct capital investments in banks is a better way to stimulate lending.

The Treasury Department has already approved the purchase of $170 billion in preferred stock in more than 40 financial institutions. The bulk of that money, $125 billion, was allocated to nine large banks that have already received their cash.

American International Group Inc., the big insurance company, will get $40 billion from the fund under a revised rescue plan announced Tuesday. That investment -- the biggest yet under the program -- means that $165 billion of the relief fund will go to just 10 companies.

The benefits of the program will be further concentrated by the pending merger between Bank of America Corp., which got $15 billion from the TARP fund, and Merrill Lynch & Co., which got $10 billion.

What's more, billions in additional money that AIG received from the Federal Reserve as part of a broader $150 billion rescue package likely were likely paid out to some of the other big TARP recipients through settlements of certain investment contracts.

According to media reports, the companies collecting from AIG included Goldman Sachs Group Inc., the firm formerly headed by Paulson; Merrill Lynch and Morgan Stanley. The latter investment firm got $10 billion in new capital from the Treasury Department.
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