Bank rescue plan notes from the last few days:
Sunday, Nobel prize winning economist Paul Krugman was telling Geo Stephanopolis that it appeared to him that the banks were going to be temporarily nationalized while an RTC type entity separates the good assets from the bad assets and that the good assets would then form a viable bank which would then be privatized. He said this is essentially what was happening to 2 smaller banks per week this year anyway.
But on Tuesday, in congressional testimony Ben Bernancke threw cold water on nationalization of the big banks. "We've always worked with banks to make sure they're healthy and stable. I dont see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize the bank when it just isn't necessary." He said in Q&A following his speech that after stress testing the big banks [>100B] under acute econmic scenario, the Fed would determine how much capital each needed to meet its obligations under stress and would inject the needed amount in the form of convertible preferred stock. Once the stress is actually experienced, the convertible stock would be exchanged for common shares for a 40% ownership interest in the bank.
On Fast Money Tuesday evening, Bill Isaac, former FDIC chair, said: "I dont think we shud nationalize our larher banks. I dont even think its feasible. That is something I have done. I nationalized our 7th largest bank in 1984 when I was running the FDIC. I nationalized Continental Illinois. And I think we need to define N. This is where the gov siezescontrl of ownership and control of the bank."
Ratigan: "This is where people get confused and there is disagreement. The bank is told, the taxpayer will cover your losses. If u need more $ come back to us next month. But noone that is not running the bank tells them to dispose of the assets so they stop incurring the losses and coming back to the taxpayer. So how do u deal with staunching the bleeding and protecting the taxpayer w/o nationalizing?"
Isaac: "I dont think its accurate to say we dont have people in there. Even in good times all the large banks have teams of resident examiners from the banking agencies who are stationed there full-time. They attend most of the board committee meetings, most of the board meetings, they are constantly reviewing the bank."
DR: "Well, with all due respect to them, they should be fired b/c we wouldnt be having this conversation if they had done their job...Moving foreward, How do you deal with the disposal of toxic assets in the sense that the taxpayer is on an infinite liability chain with no upside right now supporting an institution that essentially blackmailed its way to getting the $ in the first place?
Isaac: They didnt blackmail anybody to get the $.
DR: I build a massive financial institution that can melt the entire western world and go to the gov and say, "Either give me $1 trillion or I'll let the place burn, what would you call that?"
Isaac: "I believe that when the 9 big banks were called into Treasury they were told, "You are going to take the $ and several of them objected."
DR: Thats a different conversation. If I'm Citigroup and I say either you gibe me $45B or the place melts, which is the implied threat, how is that not blackmal?
Isaac: Well we all have decisions to make and we've got grownups in the room [R: Do we?] We have bankers who need help and we have gov officials who can either help or not. They have to decide what's best for the country.
Jeff Macke: I think Dylan is on to a point. We own 40% of Citigroup. We can call it nationalization, we can call it a new special happy fun program, we can call it whatever you want, but we are buying an awful lot of C at really bad prices and if I wanted it as a taxholder I could have actually bought the shares anyway, but I was smart enough to avoid them until I actually paid my taxes. And now I'm long the covetous lousy bank. And we're still debating whether or not it's too complicated to disassemble this thing. So how do we get from here to there?"
Isaac: OK. Theres a lot of blame to go around and a lot of it is at the feet of the govt. The govt let this housing crisis get out of control. And the SEC has been a big part of the problem...The point I'm making is that when you are in the midst of a crisis it is not time to blame anybody. It's time to get it fixed. We cant let our bank system be unstable so we have to fix them. And that's what we're doing. We're investing in them and I believe taxpayers will in the end get all their money back plus a profit." |
