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Not with my money

With the excitement about Obama's victory, don't take your eyes off the bailout.  The government is still doling out lots of money to financial institutions.  The goal is to strengthen the balance sheets of banks so they can ease up on credit.  And, to strengthen weakened insurance companies so they can meet the capital requirements that back up their policies.  It is a crisis, and I support these moves with great trepidation.

After writing last week about our investment going to fund deferred executive compensation, BailoutSleuth reported Monday about our money being used to pay very high dividends.  As bank stock prices have dropped, their dividends have become more significant.  Many investors buy bank stocks for the dividends, and that's great.  If banks are profitable and want to return profits to their shareholders in the form of dividends, no problem.  I even own a bunch of bank stocks and receive dividends from them.

But, if the banks are taking on investment from the US government, they should suspend dividends until that investment is paid back.  VCs and private equity firms know how to structure their investments to control dividend payments.  They closely manage companies to monitor compensation.  This protects their investment and focuses the money toward building the business.  Since we were the investors of last resort, we should get a similar deal.

If the government needs better lawyers to structure these deals, I recommend my friends at Foley Hoag...


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