There has been a lot of speculation as to why the banks are being handled so differently than the auto industry, why the bond holders are magically protected by TARP and PPIP even to the extent of risking the solvency of the FDIC, and of course, inflation and large expansions of national debt, fed balance sheet, etc. Well, this might be part of the answer:
smnz (URL) said:
May. 02, 4:34 PM
To understand the unwillingness to convert debt to common equity, look at who owns the debt. Information is short, but it seems that some of the major sovereign wealth funds are major bond holders in the big banks. So, China, Saudi, Abu Dhabi, Qatar, Singapore etc would not be keen on the conversion. As they are big holders and buyers of U.S. $ assets, their interests weigh on the U.S. government.
Taxpaying households' interests don't weigh as heavily as they are borrowers rather than lenders and mostly they can't exit the U.S.
chindit13 said:
May. 03, 12:46 PM
Yes, many of the large bank debtholders are foreign governments and sovereign wealth funds. Many of the other holders are insurance companies, though at no where near the level that insurance companies hold bank debt in the UK.
So the bondholders are being protected at all cost for two reasons:
1) Since foreigners hold 50% of US Treasury debt, and will be needed to fund this year's multi-trillion debt offering, they must be kept happy (whole)
2) If bank bondholders get hit, the US insurance industry gets hammered, so Geithner is drawing his line in the sand at the banks
Above was in the reader replies to this:
businessinsider.com |
