From the NY Times:
Two weeks ago, I would not have guessed I'd be writing this tonight. But here we are. Now we wait and see what these banks are able to accomplish with that money. I am reminded of Matthew 25:14-30.
Treasury Secretary Henry M. Paulson Jr. outlined the plan on Monday to nine of the nation's leading bankers at an afternoon meeting, officials said, in which he essentially told the participants that they would have to accept government investment for the good of the American financial system. This capital injection plan will use a huge chunk of the money authorized for Troubled Assets Relief Program.
Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch.
The goal is to inject massive liquidity into the banking system. The government will purchase perpectual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking chie executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings.
The capital injections are not voluntary, with Mr. Paulson making it clear this was a one-time offer that everyone at the meeting should accept.
Two weeks ago, I would not have guessed I'd be writing this tonight. But here we are. Now we wait and see what these banks are able to accomplish with that money. I am reminded of Matthew 25:14-30.
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Bill - "Two weeks ago, I would not have guessed I'd be writing this tonight. But here we are. Now we wait and see what these banks are able to accomplish with that money."
What indication do you have that such monies will not be parked in reserve accounts to pay down current and future bad debts as indicated by Chris Whalen?
Here's the Chris Whalen video interview - well worth the listen.
Bailout Nation: More Govt. Control of JPMorgan, Citi, BofA Coming
Oct 20, 2008 11:32am EDT
http://finance.yahoo.com/tech-ticker/article/98280/Bailout-Nation-More-Govt.-Control-of-JPMorgan-Citi-BofA-Coming
"Rather than resolving the crisis, the government's plan to inject capital into big banks is "merely the appetizer and soup course" in what will ultimate be a multi-course meal, says Christopher Whalen, managing director at Institutional Risk Analytics.
"So what does Whalen see as the main course? Greater government control, if not outright ownership, of the nation's biggest banks, including:
"Citigroup, which Whalen says is the "riskiest" of the group because of its exposure to consumer loans.
"Bank of America, which faces more Countrywide-related litigation and keeps more of its loans in house, meaning it has "whole loan" risk.
"JPMorgan, which is heavily exposed to potential defaults by businesses and is what Whalen calls an "over-the-counter derivatives exchange with a bank attached."
"Whalen, lauded for forecasting the banking crisis when most others were sanguine, believes the U.S. banking system is going to face $250 billion to $300 billion in additional loan losses in the coming 6 to 9 months. In anticipation of such heavy losses, banks are now diverting capital into loan loss reserves rather than seeking to make new loans.
"So when policymakers and politicians say the taxpayer monies injected into the banks is going to be used to make loans, "they are lying to us," Whalen says, using the kind of candor others are afraid of or can't afford."
----
Chris Whalen has cited the likely course of action.
Movie Guy,
"What indication do you have that such monies will not be parked in reserve accounts to pay down current and future bad debts as indicated by Chris Whalen? "
None. Maybe my last sentence was too subtle. The story ends with "weeping and gnashing of teeth."
Of course I'm hoping for a better turnout from our present situation. It may not even be a terrible thing for the banks to sit on the money for a time as the unwinding continues.
One thing going through my head these last few days is that the bailout may have bought us some time.... but too much time may be harmful. There are more shoes to drop. Letting them drop all at once is bad, but so is waiting too long for the drop.