Saturday, March 27, 2010

Finally the government gets some money from the bankers

The US Government is set to receive upwards of $8 billion from bailing out Citibank.  There has been numerous discussions about if the government should be making proceeds from bailing out the banks and my response is, why not?

Keep in mind that the Government is not really making money by taking money directly from the proceeds of the individual bank, or the pockets of the executives making millions of dollars per year making bad decisions.  They are actually receiving the proceeds from issuing new stock.  That's a win-win for the banking community and a loss-loss for the current and potential future investors.

Bankers will make millions off fees for issuing now stocks to investors and taxpayers.  The issuance of new stock dilutes the current shareholder value, as well as the funds that will buy these additional shares will come from, guess what, ultimately our taxpayer pocket books.  Why?  What they call institutional investors are companies that manage our 401K, IRA, Roth IRA, and various other forums of investment and retirement funds.  The funds that support those institutions come from people like you and I.  Fun stuff, huh?

In short, the bank is robbing Paul to pay Peter, asking the American taxpayers to buy more shares of a company that we rescued so that they can turn around and pay back... the American taxpayers.  The worst part is when the funds are paid back, they are no longer under the strict scrutiny of the American Government.  All that translates to history repeating itself, 10 to 20 years later.


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