Banking Confusion

I have been trying to follow the government handling of the banking bailouts lately, but I must tell you that I am beginning to find the whole thing rather confusing. 

Let me see if I have this right. It was the injudicious use and improper lending of money that got the banks in trouble in the first place. Much of this improper lending was done under threat from the Justice Department of the Clinton Administration in the first place (but I only throw that out as a sidelight). 

Having overextended themselves, these banks then found themselves in a rather precarious capital position when the those people to whom they lent money couldn't pay it back. The stock market responding in turn, then found itself in an equally precarious position, which made the bank's position even worse. The government agreed to loan these banks government (taxpayer) dollars in order to remain solvent, in exchange for “preferred stock”, a position which would place the government (taxpayers) first in line for receiving any dividends from the bank’s return to profitability. The government (taxpayers) would not however, receive the same voting rights as those owning common stock, and would therefore have little to say in how the bank ran from day to day. Being a government however (especially a progressive one), ours was unwilling to be in a position where they could not control how these businesses were run and reneged on their promise to not interfere. 

The banks, realizing that they were in yet another bad deal, this time at the hands of the government (remember the cause now), decided that in the choice between the rock and the hard place, they preferred the rock. Many therefore announced that they would like to give the government (taxpayers) their money back. 

Now you would think that the government would welcome a repayment of monies that were at serious risk, would take their money (with interest), and would go back to the business of government (which is normally bad enough). Instead, the government refused repayment (of taxpayer money remember), and announced to the banks that they would like to exchange the preferred stock for common stock. This meant that we would be far less likely to get this money paid back (HEY!), but that the government would now have a voting interest in how the banks were run from day to day. 

So starting out with an issue caused by government interference with the operation of banks on a day to day basis, they attempt to fix the problem by throwing government (taxpayer) money at it. When this solution proves even more egregious than the original problem to these businesses, those businesses decided to step back from this fix. The government, which remember again caused the problem in the first place, rejects getting its (our) money back, and in turn chooses more of the same and perhaps even greater control than that which caused the problem in the first place. The sum total of this assistance program in fact, is that in the name of capitalism, our government would like to commit the socialist act of nationalizing the banking industry. See my confusion?