The Fed has Got to Fix Their Priorities

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The banks may have weathered the financial crisis, but the rest of the country hasn’t. Taxpayers are still on the hook for federally guaranteed bank debt. Homeowners’ equity continues to erode. Small businesses still have trouble getting loans, and savers are still getting hammered by near zero interest rates. Joblessness remains high. State budgets are ravaged.

So whom have Washington policy makers singled out for help? Bank shareholders, including bank executives who are invariably big holders of stock in their banks.

The Federal Reserve recently gave the all-clear for several banks to increase dividends and expand share buybacks, among them JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs. That’s good news, at least in the short run for bank investors, but it is a dubious development for everyone else.

The dividend-boosting banks that were too big to fail before the crisis are even bigger now, while reforms to rein them in are under political attack even before they have been implemented. Sheer size and inadequate regulation — the combination that led to the crisis — argue for banks to use their earnings to build bigger capital cushions, not to pay dividends and repurchase shares.

http://www.nytimes.com/2011/03/31/opinion/31thu1.html?nl=todaysheadlines&emc=tha211