In the real world, strong banks that made good decisions should thrive and weak banks which made dumb investments and lending decision should fail.
But in the parallel universe inhabited by Sec Treasury Paulson, the wealthiest banks as well as poor banks should all get bucket loads of money so consumers won’t know which are weak and which are strong, but will keep on banking with the weak banks. As CNBC writes:
“Nine of the largest U.S. banks were essentially arm-twisted last week into signing on for the first $125 billion in capital infusions in an attempt to remove the stigma that participating banks need the funds to survive.”
In the real world, banks aren’t lending, and they’ve admitted that – no matter how much the government throws at them – they won’t lend in the foreseeable future.
But in Paulson’s parallel universe, the banks will be cheerfully handing out loans loans left and right to every mom and pop who politely ask:
“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending,” Paulson said on Monday.
In Paulson’s reality, everything is working out just fine. But in the real world where the rest of us live, the real problems aren’t being addressed, and the bailouts are only making problems worse.