Rent-seeking and the bank bail-out

"In economics, rent seeking occurs when an individual, organization or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth. The term comes from the notion of economic rent, but in modern use of the term, rent seeking is more often associated with government regulation and misuse of governmental authority than with land rents as defined by David Ricardo."

It is interesting to now see how funds are being allocated through the bank bail-out. The chart from the NYT shows a number of banks getting capital infusions even when the writedowns they have taken are less than the money offered from Treasury.

So why would a bank take the capital when there may be restrictions on executive pay? Banks are willing to take capital even with loans and deposits guaranteed. The capital raised from the Treasury can be used to buy smaller institutions and consolidate the banking system.The capital infusions is necessary if other global banks get a infusion and then have the opportunity to buy US banks. The capital infusion will change the economic landscape for banking.

The passing out of capital will make those institutions with capital infusions stronger relative to those that do not get the capital. There will be less competition between large banks that may be constrained in the amount of deposits they can gather in a specific region. There will be more regulation but the risks for large banks will be less.

Who is complaining with the stock market up and interbank loan and deposits guaranteed. My pocketbook is bigger today than yesterday, so why would I want to question any part of this plan. We do know that there will be fewer banks and more regulation, but it is not clear what will be the new financial world when this is over. The price may be higher than we think.