How Will Banks Spend Their Bailout Money?

As major components of financial exchange traded funds [ETFs], there was a lot of concern in the investment community and the country at large about how banks would be using their bailout funds.

Executives for some of the major banks have come out and said that they will be using the money for loans after all, reports John Dunbar for the Associated Press. JP Morgan Chase (JPM) Goldman Sachs (GS) Bank of America (BAC) and Wells Fargo (WFC) all told the Senate Banking Committee that the bailout funds would not be used to pay salaries or bonuses.

Despite the assurances, lawmakers pressed hard for commitments to more lending. And if Congress doesn’t like what it sees, it can block the lending of the second $350 billion, as well as rewrite the law to put new conditions on its use.

Meanwhile, the focus on the bailout is shifting from the financial system over to the consumer. Treasury Secretary Henry Paulson is hoping to implement a major new lending program to be run by the Federal Reserve after announcing that the government would not be buying toxic securities after all. The new plan, alluded to in Wednesday’s press conference, would be aimed at unlocking the frozen consumer market, says Edmund L. Andrews for the New York Times.

One consumer-relief program has already been scuttled: a plan to allow lenders to deeply cut credit card debt. The plan was an alliance between financial industry interests and consumer advocates, reports Marcy Gordon for the Associated Press. Consumers are increasingly defaulting on their credit cards, hurting already battered banks even further.

The Financial Services Roundtable, representing more than 100 banks, brokerages and insurance companies, says it will continue to look for ways to help consumers.

The Financial Select Sector SPDR (XLF) is down 56.9% year-to-date. Bank of America is 9.8%; Goldman is 3.4%; JP Morgan Chase is 10.6%; Wells Fargo is 7.6%.

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Comments

[sickofthehype:]

Why specific stipulations are not in place to DEMAND what is done with 'bailout money' is insane.

Probably because they were too busy filling up the 400+ pages with pork barrel BULLSHIT.

2008 Nov 14 01:19 PM

[Syl:]

Congress has opened a Pandora's box and now has no idea how to close it.

The automotive companies were second in line for a handout and now cities and their lobbyists are descending on Washington with hat in hand.

Did any of these companies try to re-negotiate contracts and reduce long company paid vacations and high hourly salaries? Surely these workers would rather lose a little that would save their jobs. GM, Ford, and Chrysler will be right back with these same problems unless they can learn to build better cars at less cost. A bailout may be the answer for maybe a year and by then the above companies will be back wanting another bailout.

2008 Nov 14 07:28 PM

[PeteK:]

There'll be more after Jan. 20th.
Wait & see !!

2008 Nov 16 02:06 PM

[nyka:]

The answer to your question is simple. The banks will triple the annual salaries and year-end bonuses for their unbelievably incompetent CEOs.

2008 Nov 24 09:31 PM