Paulson is handing out free money like candy to a baby

Hank Paulson knows he has two months left until he leaves Washington. Therefore, he must feel he needs to pass out as much free cash to his friends in banking and finance before he leaves town. Or, at least so it seems.

The latest story I saw on this turn of events concerns Citigroup and its bid to take over my local bank, Chevy Chase Bank. This bank, whose headquarters is literally half a mile from my house is a profitable institution with $14 billion in assets. How can Citigroup, which has over $60 billion in writedowns, is losing money hand over fist, and received a massive cash injection from the federal government just weeks ago take over a smaller, more profitable institution? Doesn’t this create a moral hazard? I heard Peter Morici, a well-known International Business Professor at the University of Maryland, on the radio this morning asking the same questions.

The US banking system is certainly in need of recapitalization. But I must confess this looks a lot like crony capitalism. Let me do a brief recap of how we got here and add in some of the ways US Government money and the $700 billion TARP (Troubled Asset Relief Program) have been used to date.

Hank Paulson knows he has two months left until he leaves Washington. Therefore, he must feel he needs to pass out as much free cash to his friends in banking and finance before he leaves town. Or, at least so it seems.The latest story I saw on this turn of events concerns Citigroup and its bid to take over my local bank, Chevy Chase Bank. This bank, whose headquarters is literally half a mile from my house is a profitable institution with $14 billion in assets. How can Citigroup, which has over $60 billion in writedowns, is losing money hand over fist, and received a massive cash injection from the federal government just weeks ago take over a smaller, more profitable institution? Doesn't this create a moral hazard? I heard Peter Morici, a well-known International Business Professor at the University of Maryland, on the radio this morning asking the same questions.The US banking system is certainly in need of recapitalization. But I must confess this looks a lot like crony capitalism. Let me do a brief recap of how we got here and add in some of the ways US Government money and the $700 billion TARP (Troubled Asset Relief Program) have been used to date.
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