The U.S. government is expected to buy stakes in the nation’s top financial institutions as part of a wide-ranging effort to restore confidence to the battered banking system, following similar moves by European governments that sent global stock markets soaring.
Morgan Stanley CEO John Mack (L) and Citigroup CEO Vikram Pandit leave a meeting at the Treasury Department.
As part of its new plan, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp., Merrill Lynch, Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street, according to people familiar with the matter.
Not all of the banks involved are happy with the move, but agreed under pressure from the government. All told, the moves tie the banking sector to the federal government for years to come. The comprehensive approach rivals the breadth of the government’s response to the Great Depression. As a result, taxpayers now have a direct stake in the future of American finance. Along with the government’s involvement come certain restrictions, such as caps on executive pay.
“U.S. to Buy Stakes in Nation’s Largest Banks”By: Ari Monday October 13, 2008 6:37 pm |
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It’s the lack of details when such is announced that drives me crazy.
“Preferred stock may or may not have a fixed liquidation value, or par value, associated with it. This represents the amount of capital that was contributed to the corporation when the shares were first issued.”
“May or may NOT” ; so what is it going to be?
“Almost all preferred shares have a negotiated fixed dividend amount. The dividend is usually specified as a percentage of the par value or as a fixed amount. For example Pacific Gas & Electric 6% Series A preferred. Sometimes, dividends on preferred shares may be negotiated as floating i.e. may change according to a benchmark interest rate index such as LIBOR.”
So what will be the ‘fixed dividend amount?
See here for more info
Treasury to take $250 bln equity stakes in banks: WSJ
“Essence Of The Rescue Plan”
“To stimulate lending, the bailout plan will attempt to recapitalize banks. The method of recapitalization is best described as robbing Taxpayer Pete to pay Wall Street Paul. In essence, money is taken from the poor (via taxes, printing, and weakening of the dollar) and given to the wealthy so the wealthy supposedly will have enough money to lend back (at interest) to those who have just been robbed.”
Sheesh; see what I mean about details?
Whoops, too quick with the enter button:
“This would not be as bad as Shedlock suggests IF there was also, as in the best-practices model of Sweden, some punitive elements (getting rid of incumbent management, wiping out shareholders, nationalizing banks, which in the Swedish case enabled the taxpayer to profit) and a plan to rationalize (as in shrink in an orderly fashion) the industry. Instead, the Treasury appears to be trying to prop up the industry in place. That is not likely to be a winning formula.”
excellent comments ubetchaiam. thank you.
also, on this: “caps on executive pay.”
i want to see the actual language on that one, because it sure sounded like treasury was trying to help corps get around that one.
Selise, pay no attention to Raven; if I had a way to tell you privately why I would.
More RE ‘discuss’:
http://www.guardian.co.uk/comm…..editcrunch
http://www.opendemocracy.net/b…..-the-banks
ibetchaiam – thanks for this. Even if we manage to diffuse political power I think we will still end up in the same place, until our financial system spreads economic power more equally.
Looks like Roubini agrees with me about ‘details’
“details of these plans are still very fuzzy and ambiguous and with uncertain effects on various assets classes (common shares, preferred shares, unsecured debt of financial institutions, etc.)”
http://www.nakedcapitalism.com…..icant.html
What I also find interesting is that what he is suggesting seems similar to the speech Obama gave in Toledo, Ohio today.