Friday, March 18, 2011
The Fed has decided to allow troubled banks to loot the taxpayers by allowing some to pay dividends and/or share buybacks.
This might sound like a boon and an encouraging sign of economic revitalization, but in reality it is a decision built upon a flawed capital model that ignores massive losses and potential losses sitting on the banks books.
Taxpayers are still on the hook for any bank failures in the future, not share or bondholders of these institutions. So while the banks pay out their large bonuses, big dividends and continue to burn cash that should be used to fix the problems they created, the nation remains mired in an economic drought with no end in sight.
Scott Dauenhauer, CFP, MSFP, AIF