October 9, 2008
Pilfered Headline Of The Day: All Your Bank Are Belong To Us!
A reader issues a Photoshop challenge (from which we pilfer our headline). Another responds on the fly (we’re still seeking others). And the genesis:
Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions.
∙ QuickLinks: Everybody Cuts (But Nobody Seems To Care) [SocketSite]
∙ Paulson Signals Treasury May Invest Capital in Banks [Bloomberg]
∙ $700 Billion Bailout Bill Round Two: One Down, One To Go [SocketSite]
First Published: October 9, 2008 9:00 AM
Comments from "Plugged In" Readers
The question is not if the banks will be nationalized but when and partially or fully.
The danger is if the government acts too quickly we'll pull an Iceland. If it acts too slowly then deflationary expectations will take hold and hello GD2.0 .
Posted by: Jay at October 9, 2008 9:52 AM
All Your Bank Are Belong To Us!
For Great Justice!!!
Posted by: San FronziScheme at October 9, 2008 10:05 AM
Does anyone know if the ownership interest being considered would include managment rights or is it, as is my understanding, merely a hedge to hopefully payback something to taxpayers once/if the crisis passes?
Posted by: CameronRex at October 9, 2008 10:13 AM
They're making this up as they go along. Everything's on the table.
Posted by: diemos at October 9, 2008 10:18 AM
They're making this up as they go along. Everything's on the table.
I'm feeling safer already. A bit like riding on a coach with faulty breaks. The driver negotiates switchback after switchback while our stomachs remind us we shouldn't have eaten so much at the last rest stop.
Posted by: San FronziScheme at October 9, 2008 10:31 AM
Folks, time to consider your support for NPR and "This American Life". They seem to be one of the few outlets who reported this story at the time bailout passed. I would not doubt that this may be one of the reasons Paulson is at the podium talking about this avenue.
So it was surprising to learn on Friday that, despite intense opposition from the powerful banking lobby, language authorizing the government to use a stock-injection plan did make it into the final version of the bailout bill. The law does not make a stock-injection plan mandatory, but it does leave it as one option that the Treasury secretary can use when bailing out a distressed bank.
CameronRex, good question. From my own reading (of the section summaries), I came to the same conclusion as you.
From the Senate summmary: Section 113. Minimization of Long-Term Costs and Maximization of Benefits for Taxpayers.
In order to cover losses and administrative costs, as well as to allow taxpayers to share in equity appreciation, requires that the Treasury receive non-voting warrants from participating financial institutions.
The Bloomberg article is a bit short on details, so maybe some of the great finance minds here can help us out.
Posted by: EBGuy at October 9, 2008 1:08 PM
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