Paying Dividends with Public Money
Normally corporate dividends–or executive salaries–should not be a matter of government concern. But how about when the feds are forking over taxpayer money to encourage borrowing? It turns out that the banks have taken the money (some more enthusiastically than others) and, well, used it for other things, such as buying other banks and paying dividends. This has reduced the White House to whining that they are supposed to be getting out there throwing money at borrowers, any borrowers.
But there are dividends to pay. Reports the Washington Post:
U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years.
The government said it was giving banks more money so they could make more loans. Dollars paid to shareholders don’t serve that purpose, but Treasury officials say that suspending quarterly dividend payments would have deterred banks from participating in the voluntary program.
Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends — or conversely, why banks that need government money are still spending so much on dividends.
“The whole purpose of the program is to increase lending and inject capital into Main Street. If the money is used for dividends, it defeats the purpose of the program,” said Sen. Charles E. Schumer (D-N.Y.), who has called for the government to require a suspension of dividend payments.
The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.
Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.
The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury’s investment over the initial three-year term.
“The terms of our capital purchase program were set to encourage participation by a broad array of financial institutions so they strengthen their financial positions,” Treasury spokeswoman Michele Davis said.
The Treasury’s approach contrasts with decisions by foreign governments, including Britain and Germany, to require banks that accept public investments to suspend dividend payments until the government is repaid. The U.S. government similarly required Chrysler to suspend its dividend payments as a condition of the government’s 1979 bailout
So, the federal government takes our money and gives it to banks to give to shareholders in the hopes that the banks will take more of our money to lend to people, any people, in order to give the banks a profit. This isn’t socialism. It is corporate welfare. Are there any politicians left who believe in the market system?