Yesterday’s Wall Street Journal ran an article about how the Treasury’s bank buyout fund is luring “thousands of banks.” When the program was first announced, banks were afraid to apply, thinking it would make them look weak, but now they are afraid not to apply, since not having government money could make banks look like they were too weak to qualify.
But the article also noted that banks are thronging the Treasury because the Treasury capital – taxpayer capital – is so cheap. Here is the money quote:
Now institutions across the U.S. worry that if they don’t try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.
Many years ago I worked for a venture fund that was captive to a small investment bank. All the other VCs looked at us as dumb money. “Nobody else will invest in it, call those guys…they’ll do anything to get a banking fee.” Dumb money is who you call to bail out your losers. Dumb money accepts whatever price you offer, and doesn’t ask for better terms.
The Treasury department, acting on behalf of the taxpayers, is dumb money. WE’RE dumb money. That sucks.