Nicking the watch off the hand that fed you

The banking industry is just impossibly shameless:

[T]he banks that received the biggest taxpayer bailouts are seeking to reap trading profits from securities rescued by the government. Only months after it was started, the U.S. program designed to purge debts of no immediate discernable value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied. Bank of America Corp. and Citigroup Inc., who received 22 percent of the $418.7 billion American taxpayers loaned to troubled financial institutions, boosted holdings on their trading books of home-loan bonds that lack government guarantees while investors were raising cash for the program, according to Federal Reserve data.

To make this a bit clearer: Treasury gave the banks a bunch of money to save the financial system. Shortly thereafter, it proposed giving a handful of investors a bunch of money so they could buy the worst of the securities off of bank balance sheets. The banks responded to this news by buying up toxic securities quick as they could so they could sell them at inflated prices to the government-subsidized investors. It's like a kid trying to boost his allowance by ripping up his clothes so you'll buy him nicer, newer ones.

As I remember from the unveiling of the PPIP program, though, this was predicted almost instantly. It's the obvious reaction to the government promising to buy securities at inflated prices. The fact that it was so widely predicted made it seem like the government was going to make sure it didn't happen. Guess not.

