One of the things that so-called Free Market advocates have been pretending never happens (or have been decrying as a result of government interference) is the concentration of wealth and market share in the hands of fewer and fewer companies (and individuals, for that matter).  For the record – as we’re about to see – government interference can indeed cause such a thing to happen, but that’s not the only reason it does happen.  Bluntly and generally put, the more cash you have, the easier it becomes to get more cash.  If you make a bad investment that is not sufficiently liquid for you to escape from, and get hammered into the poor house, well, that can happen to anybody and is Your Problem… unless the government decides it’s not:

Nine banks to get $125 billion, will the other 8,486 crater?

Global markets are rising fast in the wake of yesterday’s 11.1% Dow rally in the U.S. And they may be in for more upside depending on how investors react to the latest plan to invest capital in nine big banks — a plan that sounds similar to the one in the U.K. The true test of this plan will be whether it causes inter-bank lending rates to plunge. But it also runs the risk of causing capital flight from banks that don’t get enough of the government’s money to ensure their soundness.

Meaning nine banks will get half of the money (or half the pain, depending on how you feel about government holding equity in private institutions), which is probably somewhat fair given how much money and market share those nine banks hold – a frightening thought.

A quick pointer for you, though… this is not Socialism, because these “purchased” (I use scare quotes because these purchases are not optional) interests do not translate into voting stock (they translate into options for a small amount of real stock – sort of:

What does the government get in return for this capital? It gets perpetual preferred stock that receives dividends plus warrants to buy some stock. Specifically, the perpetual preferred earns a 5% interest rate that will rise to 9% after five years. The warrants will be worth 15% of the face value of the preferred — e.g., a $25 billion investment, will grant the government $3.75 billion in warrants (although it’s not clear at what price those warrants would be exercised). If the stock goes up, taxpayers can profit.

It makes me cranky that I have no idea what that means (or to be more specific, that I have no idea what the motivation is behind setting it up that way).  I’ll find out and add more later, but in the meantime, to the underlying point of this post: this is not Socialism.  While this has elements of a planned economy hiding in it, the deal is structured quite specifically to not diminish the held value of preferred (as opposed to perpetual preferred – I love the way different names are used to enhance or preserve what at their heart are simply class differences with a price tag) shareholders, or give the government a measure of actual control over the company being bought into.

Anyhow, I’m a very paranoid critter who has far too little knowledge about what Wall Street Wizardry (heh) is being woven here, so I’ve pulled my 401k out of stocks and put it into bonds with a smidgen of balanced, long-term hedges.  I have a bad feeling about this.