US May Avoid More Bailouts by Trading Loans for Equity

Conversion could stretch bailout fund by $100 billion
By Clay Dillow,  Newser Staff
Posted Apr 20, 2009 8:54 AM CDT
US May Avoid More Bailouts by Trading Loans for Equity
President Barack Obama, accompanied by, from left, Economic Adviser Christina Romer, Treasury Secretary Timothy Geithner, and Economic Adviser Lawrence Summers.   (AP Photo/Ron Edmonds)

President Obama’s economic team has figured a way to keep the banks afloat without asking Congress for more money, by converting the government's existing bailout loans to common stock, the New York Times reports. The conversion plan could stretch Treasury’s fund by more than $100 billion, but it would expose taxpayers to increased risk and would be another step in the politically explosive direction of nationalization.

Converting loans to common stock—giving the government the largest single bloc of votes in some of the nation’s 19 biggest banks—would turn every taxpayer dollar into capital on the banks’ books without more taxpayer investment. Treasury officials have about $135 billion left from the original $700 billion bailout, not enough to ensure banks remain stable.
(More financial crisis stories.)

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