U.S. May Take Ownership Stake in Banks...

[Zim Hosein]

Moved to P&N
bsobel

WASHINGTON ? Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks? balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

The Treasury plan, while still in preliminary stages, resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt.

The American recapitalization plan, officials say, has emerged as one of the most favored new options being discussed in Washington and on Wall Street. The appeal is that it would directly address the worries that banks have about lending to one another and to other customers.

The concern is that the bailout law calls for limits on executive pay when capital is directly injected into a bank. The law directs Treasury officials to write compensation standards that would discourage executives from taking ?unnecessary and excessive risks? and that would allow the government to recover any bonus pay that is based on stated earnings that turn out to be inaccurate. In addition, any bank in which the Treasury holds a stake would be barred from paying its chief executive a ?golden parachute? package.

U.S. May Take Ownership Stake in Banks

About time right?

 

[her209]

Bank of America... I'm calling it.

 

[wyvrn]

Good. CEOs take a lot of money and run after they run their company into the ground.

 

[SirStev0]

Does anyone know which way P&N is? I am trying to find threads about politics and news... I think that is where I should find them? Anyone? Which way?

 

[ponyo]

Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

 

[xSauronx]

Originally posted by: her209
Bank of America... I'm calling it.

noooooooooooooooooooooo

/mostly broke, dont really care

 

[TechHead87]

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

 

[IEC]

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

 

[benzylic]

Originally posted by: her209
Bank of America... I'm calling it.

its fitting.

one of the local banks around here is called "1st National Bank"

 

[ric1287]

We shoulda just let all the banks fail. That'll show em!

 

[LegendKiller]

Might not actually be that bad of an idea, provided TARP doesn't work. Although I do think it'd be a bad idea to wipe out all equity investors.

 

[NoStateofMind]

Originally posted by: her209
Bank of America... I'm calling it.

lol

 

[BarneyFife]

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Fuck the founding fathers. People need to turn the page and embrace regulation so we don't have any more of these messes. Have the government run the banks and at least we know our money would be safe.

 

[First]

I like the idea of limiting 8-figure payouts, that's pretty obvious. I just wonder if there's going to be some loophole that enables CEOs to get ridiculous salaries as a result. Either way, I like their line of thinking.

 

[bamacre]

Yeah, the government taking ownership of private enterprises is definitely a good thing.

 

[blinky8225]

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Yeah, but it's because the world has changed a little since the 18th century.

 

[First]

Originally posted by: BarneyFife

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Fuck the founding fathers. People need to turn the page and embrace regulation so we don't have any more of these messes. Have the government run the banks and at least we know our money would be safe.

I agree with the rest, but the bolded is obviously jumping the shark. I think the founding fathers knew exactly what they were doing when they constructed a broad, and not overly specific outline of what they wanted to see in the Constitution, which is why it took a decade for them to figure it out and get it approved by the colonies. As was confirmed in the Federalist papers, specifically by Hamilton, the founding fathers were of the mind that one of the few things that should be enumerated was a Bill of Rights, even though Hamilton feared that it could later be interpreted that these were the only rights of Americans. That same line of thought applied to Congress and is exactly why so many people believe the Commerce clause was purposefully left a little ambiguous, so as to be interpretable by later generations as they saw fit. And with inventions like computers and Internet, something the founding fathers couldn't possibly have foreseen, the foresight of these great men have proven to be quite impressive. Indeed, we've been a hugely successful country as a result.

Forgive me if I missed any sarcasm in your post.

 

[silverpig]

Originally posted by: bamacre
Yeah, the government taking ownership of private enterprises is definitely a good thing.

Yeah, look how well the whole privately run banking system thing turned out. Without the government to save their asses, everyone would be up shit creek.

 

[AAjax]

Originally posted by: Spartan Niner

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Most of all the fact the populace is doing nothing. Deer in the headlights style.

 

[Schadenfroh]

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

No kidding, my thought exactly...

 

[mshan]

NYT (9/22/08): http://www.nytimes.com/2008/09...q=swedish%20way&st=cse

"A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. ?The public will not support a plan if you leave the former shareholders with anything,? he said.

WSJ (9/26/08): http://online.wsj.com/article/...mod=article-outset-box

"The Treasury plan to buy illiquid financial assets has been widely criticized as being unfair to taxpayers, who will have to bear losses ahead of shareholders of the institutions that will be bailed out.

There is a better alternative to stabilize the markets: Invest the $700 billion of taxpayer money in senior preferred stock of the troubled financial institutions that pose systemic risks. Let's call this the "Preferred plan." In fact, it is the Fannie Mae and Freddie Mac model -- which the Treasury Department has already endorsed and used in practice. It is also the approach Warren Buffett used for his investment in Goldman Sachs.

There are major problems with the Treasury plan. First, by buying banks' worst assets at above-market prices, taxpayers take an immediate economic loss -- while transferring wealth to shareholders and executives of the very institutions that brought on the financial crisis.

Second, this plan puts too much discretionary power in the hands of Treasury officials. Who determines what financial assets are purchased and at what prices? Who determines which bank gets to benefit from these taxpayer subsidies? Will bank shareholders continue to receive dividends, and executives continue to get paid huge bonuses?

When financial institutions borrow massive amounts of money to invest in assets that are now found to be illiquid and poorly performing, it is not the responsibility of taxpayers to bear the resulting losses. These losses should be borne by the shareholders.

If taxpayers have to step in and provide capital to keep operating enterprises that the government decides are key to the functioning of the economy as a whole, taxpayers must receive protection.

Treasury Secretary Henry Paulson said at the Senate Banking Committee hearing this week, "[the] Fannie Mae and Freddie Mac [interventions] worked the way they were supposed to." These enterprises continued to function, maintaining homeowner access to and lowering the cost of mortgage financing. However, managements of these companies had to leave and forfeit the compensation packages they had negotiated.

Shareholders had their dividends blocked and remain first in line to bear losses, as they should have been. Taxpayers came both first and last -- first to get paid back, as the new preferred stock is senior to all shareholders; and last in realizing losses, as common and other preferred equity would be extinguished before the taxpayers would be at risk.

This mechanism -- purchases of senior preferred stock with warrants in troubled institutions -- addresses the problems with the Treasury plan. The financial market is stabilized, companies get recapitalized, failures are avoided, debt securities are supported, and time is gained for illiquid assets to mature.

The institutions continue to function, their cost of funding will decline as equity capital increases, and innocent third parties like bank depositors, broker/dealer clients and insurance-policy holders are all protected. The only difference is that potential losses are kept with the shareholders where they belong.

The Treasury plan would also entail larger outlays than the Preferred plan. By allowing all banks to sell their worst assets to Treasury at inflated prices, taxpayers would be subsidizing healthy banks which have access to private capital (Goldman Sachs, J.P. Morgan, Wells Fargo, and Bank of America, for example) as well as banks that don't have a private alternative. But under a Preferred plan, only banks that don't have a private alternative will be given federal assistance. This would reduce the outlay otherwise required to solve the crisis.

Few people familiar with the issues deny that Treasury action is needed to stabilize the financial markets. However, the question is who should bear the cost?

Under the Treasury plan the taxpayer pays the price. Under a Preferred plan, the shareholders of the firms who created the problems bear the first loss. Who do you think should pay?

Before committing $700 billion of our money, we should encourage Congress to take a few extra days to get this legislation right."

Gary Kaultbaum (Wall Street trader): http://www.tradingmarkets.com/...Bill-Working-78717.cfm

"Since the Bush/Paulson scam bailout proposal... which was pushed through with over-the-top scare tactics and then finally approved by the lemmings... the market's results have been telling:

Since September 19th... only 12 trading days:

DOW 11,388 to 9447 down 17%
S&P 500 1255 to 966 down 20.6%
NASDAQ 2273 to 1754 down 22.8%
NDX 1745 to 1329 down 23.8%
Russell 2000 753 to 559 down 25.7%

I will repeat what I have been saying. The market is sick and tired of the people that have been running the show. They just continue to repeat the same mistakes over and over again. This bill was one of the biggest shams in the history of the markets... and guess what... the market has voted. Hank Paulson is now hiring a guy who looks like Dr. Evil and comes from... guess where? Yup... Goldman Sachs: ground zero for all this leverage that put the financial markets in this position. This is like giving keys to the bank to Bonnie and Clyde... and the markets know it. This bill was unconstitutional, flies in the face of everything government is supposed to be about and has been put in the hands of the bad guys. Again, the markets have voted."

"The direct recapitalization of ailing banks is ?high-impact? money versus the ?low-impact? approach that Treasury is pursuing through the bailout fund.

Equity infusions would introduce 10 to 12 times the amount of the initial government investment into our credit markets, argues Johnson who also served as chief economist of the Senate Banking Committee in the late 1980s.


This means that capital infusions of $700 billion would free up $8.4 trillion in overall credit, while purchasing $700 billion worth of assets wouldn't unleash any additional credit."

http://www.cnbc.com/id/27089749


Lou Barnes: (this guy has been spot on for quite some time :thumbsup: http://www.inman.com/buyers-se.../columnists/lou-barnes

 

[bamacre]

Originally posted by: blinky8225

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Yeah, but it's because the world has changed a little since the 18th century.

Only from one perspective. In many, many ways, things haven't changed at all.

 

[bamacre]

Originally posted by: silverpig

Originally posted by: bamacre
Yeah, the government taking ownership of private enterprises is definitely a good thing.

Yeah, look how well the whole privately run banking system thing turned out. Without the government to save their asses, everyone would be up shit creek.

Private institutions, you mean like GSE's?

 

[JulesMaximus]

Any bank in which the Treasury holds a stake would be barred from paying its chief executive a ?golden parachute?

That should be a fucking given. :|

 

[First]

Originally posted by: bamacre

Originally posted by: blinky8225

Originally posted by: TechHead87

Originally posted by: Naustica
Nationalization of all US banks. I would have called you crazy a year ago. Now it could be reality. :Q

America is slowly, but surely, turning into something very unAmerican.

Our founding fathers would sh*t if they saw what is taking place in the country.

Yeah, but it's because the world has changed a little since the 18th century.

Only from one perspective. In many, many ways, things haven't changed at all.

Finance, technology, trade, technology, culture....has anything relevant to bank nationalization not changed since the 18th century? No, actually.