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Where Did The Bailout Billions Really Go?
By CBS News
WASHINGTON, Jan. 12, 2009(CBS) When Congress passed the $700 billion dollar bailout, the whole idea was to buy failed mortgage assets.
But once the bill became law on October 3, Henry Paulson's Treasury Department moved quickly on an entirely different front: Give bailout money to select banks to help them buy competitors. It was largely under the public radar, with only anonymous government officials acknowledging the strategy, CBS News investigative correspondent Sharyl Attkisson reports.
During the hearing on Nov. 13, Sen. Chris Dodd, D-Conn., called it "confounding to me."
Rep. Dennis Kucinich, D-Ohio, said it "breaks with congressional intent."
But CBS News has learned the banking industry was clued-in from the start.
Listen to what BB&T Bank's chief executive told analysts in a conference call shortly after the bailout passed. He's not talking about using bailout funds to help with mortgages or consumer credit - but to buy other banks.
"This is a relatively inexpensive way to raise capital for acquisition opportunities," said John Allison, CEO of BB&T.
A month later, they got $3 billion in bailout money.
Just look at all the banks we found that have gotten taxpayer bailout funds, and are gobbling up the competition:
# Bank of America received $15 billion dollars and bought Merrill Lynch, which got $10 billion even as it was up for sale.
# Morgan Stanley, the recipient of $10 billion, is buying Chinatrust Bank.
# A half dozen more - including M&T, Capitol One, U.S. Bancorp, Hampton Roads Bankshares and PNC - got bailout money and are buying other banks.
Nobody from the Treasury Department would respond to CBS News' questions. But some analysts say the idea is to strengthen the banking industry by giving strong banks the means to take over weak ones.
It's not necessarily working out that way.
Some banks judged by federal regulators as "strong," like Merrill Lynch and Provident Bancshares, are the very ones getting bought out.
And some in Congress are upset that the Treasury Secretary is hand-picking winners and losers.
In a November 14 hearing, Rep. Darrell Issa, R-Calif., said: "Hank Paulson gets to decide who lives and who dies? Who buys whom?"
Take PNC Bank and National City. Both wanted bailout money but only PNC got it: Then, it bought National City.
Rep. Kucinich is from Cleveland, where National City was based. He grilled the Treasury official in charge of the bailout, Neel Kashkari, saying in the Nov. 14 hearing: "You picked a winner, PNC, and you picked a loser, National City Bank."
Kashkari responded: "With deep respect, it is not appropriate for me to speak about an individual institution, but I can talk generally about …"
"Well, with deep respect, you know, you put 4,000 people out of work in the city of Cleveland," Kucinich said. "You're, you know … are you taking a Fifth Amendment here?"
"No, sir," Kashkari said. "I don't think it's a good use of taxpayer money to put taxpayer capital into a financial institution that's going to fail."
"Boy, you know that statement that you just made you will hear about for the rest of your career," Kucinich said.
With billions going to banks and so far not helping with the mortgage crisis, congressional leaders this week said no further bailout money will be given to Treasury without much stricter conditions.