The news hit Friday that the Federal Reserve is allowing big banks to pay sharply higher dividends. I don't understand how the Fed justified that decision. And not just because the results of the so-called "stress tests" are secret. At least our four biggest banks are insolvent, Adam Levitin explains at the blog Credit Slips. The banks' balance sheets only come out in positive territory if home equity loans made during the bubble years are valued at much closer to their face value than good accounting or even common sense would dictate
So why are the banks being allowed to give away cash to their shareholders that would be better applied to shoring up those shaky, fictional balance sheets? Yes, bigger dividends means the big executives, who are also big shareholders, get to pay themselves even more "compensation," but I'm not cynical enough to imagine that's what motivated the Fed to give the OK. So what gives?
Source: Daily Finance
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