Part of the idea of injecting capital into the “good” banks was to remove the stigma for other banks seeking capital (via the WSJ):

Other elements of the plan, which will be announced Tuesday morning, include: equity investments in possibly thousands of other banks; lifting the cap on deposit insurance for certain bank accounts, such as those used by small businesses; and guaranteeing certain types of bank lending. It builds on an earlier plan to buy up rotten assets dragging down banks, which failed to calm investor fears, and follows similar moves by major European countries.

But has the stigma really been removed? The banks chosen yesterday were widely believed to be the survivors so anyone coming forward now will still be seen as a “bad” bank, won’t they? I would much prefer that the banking sector just consolidate through mergers with the “good” banks using Uncle Sam’s capital to facilitate the process. Why bother putting good money after bad?

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