In yesterday’s post, The Market Always Works, I said:

Paulson has now forced capital on the nine largest banks and admonished them to not hoard it. Let’s hope he gave them each a list of target banks and instructions to get some deals done. That is the best use of the new capital. More lending will not be of much use to a system drowning in debt.

Apparently, some banks agree:

WASHINGTON — The federal government’s $250 billion plan to bolster U.S. financial institutions is aimed at persuading healthy banks to lend again, but it’s likely to foster further consolidation in the industry, with some banks already saying they intend to use the funds to help make acquisitions.

Our economy already has too much debt. More lending is not the answer. Consolidation of the banking sector is necessary to remove the bad banks from the system. If government capital will speed that process, then maybe this market intervention can do some good.

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