At least a dozen people asked me to comment on the New York Times article So When Will Banks Give Loans? Most seem to believe the bank bailout package is part of some complicated scheme by the treasury and Fed to give banks taxpayer money explicitly for takeovers.



Indeed that is the very essence of the tale the New York Times is spreading.



The Times article is a bit disjointed, so I rearranged paragraphs slightly for ease in understanding. My insertions are in braces. From the New York Times ....



It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked [on a conference call] “Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”



[Dimon Responded] “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”



Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.



It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.



In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.



Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

There Is No Lending Conspiracy



The government stepping in to provide cheap financing to GE is not doing anyone any good. Paulson wants banks to lend, and by doing so is artificially driving down short term rates. Why should GE get short term financing from banks, when it can get a better deal (at taxpayer expense) from the government?

Fed Becomes Lender Of Only Resort

Rising unemployment

Rising credit card defaults

Rising foreclosures

Rising bankruptcies

Massive overcapacity



The TAF, PDCF, TSLF, CPFF, MMIFF, ABCPMMMFLF

Terms of the Bailout

Could That Be The Treasury Game Plan All Along?

New York Times Theory

Paulson asked for taxpayer bailout money explicitly to get banks to merge.

To cover up his tracks, Paulson changed his mind three times on how to spend that money.

To guarantee the merger outcome, Paulson called all the big banks in a room, forced them to take loans at a rate that would ensure they would not want to lend it, but instead would want to use it in mergers.

Prior to the above three points, the Fed embarked on a series of lending facilities cleverly disguised to make it undesirable for banks to lend to each other or for anything else, while purporting to do the opposite.

My Theory