December 14, 2009
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Obama Encourages Banks to Lend Money, Pt.2
Controversy and concern over diminishing capital.The government handed out more than $245 billion in taxpayers' money to failing banks and credit card companies. If Citigroup's deal is approved, banks and credit card companies would have paid back over $136 billion of the bailout money. This won't end the government's involvement with ownership of American corporations; they still have a huge stake in the American International Group (AIG) and General Motors (GM). Despite the quick exit from the bailout programs, experts remain resigned about the credit card companies and bank's quick exit. They believe the companies remain too shaky and could tumble easily if things get rough and all their capital has been depleted in paying back the money. Such a move could throw the economy back into another recession and economic disaster.
There is speculation that one reason the banks and credit card companies were in such a hurry to repay the taxpayers' bailout money is to pull themselves up out from under the harsh rules of government control. It is also speculated that if the government approves Citigroup's proposal to raise the funds necessary to pay back the Fed's, it could spark a national rush by small banks to repay taxpayers in an effort to get out from under public criticism and government scrutiny. On the other hand, the Fed is concerned that if banks and credit card companies drain company assets to repay bailout money, there won't be any capital left to lend. If this should occur it could put additional stress on an already weak economy.
If Citibank's deal gets approved, only two major financial institutions, Wells Fargo and PNC Financial will remain indebted to taxpayers. The two banks continue to struggle mainly due to the debt ridden companies they acquired during the economic crisis which contributed to excessive credit card and mortgage write-offs. Any way you look at it, taxpayers are bound to come out with the short end of the deal.