Treasury going ape shit.

[Sean of the Thread]

For fucks sake.

This shit is getting out of control on both sides.

[NocturnalRob]

JUST TAKE ALL THE MONEY!!

this is retarded.

[ClydeR]

The Treasury is forcing those nine large banks to borrow the money from the Treasury regardless of whether the banks want or need the money. That's not right.

[Allereli]

Does it sound like the government is saying, "Take this money and go make more irresponsible loans" to anyone else?

A dollar-filled mattress pad is sounding good right now.

[Drew]

A dollar-filled mattress pad is sounding good right now.


Being Asian one would presume you already have this.

[Kembal]

Actually, this was absolutely necessary. (Wells Fargo wouldn't have needed this if they hadn't bought Wachovia, but they did, so now they kind of do.)

If you're familiar with corporate balance sheets, you know the basic rule is this: Assets = Liabilities + Net Worth.

When all these mortgage backed securities lost value, the asset side of the books took a nosedive. Unfortunately, the liability side of the books did not decrease correspondingly. Which meant the decrease had to come from the net worth of the bank, which is the amount of capital they have.

If a bank goes too low in capital, it goes under. (for an example, see WaMu) This is the way to stop bank failures. The plan of buying mortgage backed securities from the banks without taking an equity stake (which meant the government would be giving loans instead), which was the original plan, would have increased the asset and liability sides of the balance sheet without affecting net worth. Bank failures would've still occurred.

All of Europe is undertaking the same plan. I imagine there will be a coordinated effort to ensure irresponsible lending practices will be curtailed.

[Allereli]

All of Europe is undertaking the same plan. I imagine there will be a coordinated effort to ensure irresponsible lending practices will be curtailed.

Yes, I'm expecting the same oversight as in the AIG case.

[Kembal]

Heh. No oversight of AIG happened because that was set up ad hoc by the Treasury and the Fed. I still have no idea what office in the executive branch oversees AIG, which is the major concern. (though I imagine having to deal with Henry Waxman probably makes them wish they didn't need a government bailout)

The original bailout legislation established a 5 person oversight board for the banks that do get bailed out on this, as well as a Treasury office that's in day to day control. So if oversight doesn't occur, it's because of incompetence, and not a structural problem.

(Of course, I write that, and then realize we're still governed by one of the most incompetent administrations ever. Hrm.)

[Sean of the Thread]

It may have been needed but so was the invasion of Iraq and such but I don't hear you guys ringing that bell. Anything that preserves our way of life and country ... but these bailouts are a tad different.

Where is the responsibility?

[ClydeR]

Actually, this was absolutely necessary. (Wells Fargo wouldn't have needed this if they hadn't bought Wachovia, but they did, so now they kind of do.)

If you're familiar with corporate balance sheets, you know the basic rule is this: Assets = Liabilities + Net Worth.

When all these mortgage backed securities lost value, the asset side of the books took a nosedive. Unfortunately, the liability side of the books did not decrease correspondingly. Which meant the decrease had to come from the net worth of the bank, which is the amount of capital they have.

If a bank goes too low in capital, it goes under. (for an example, see WaMu) This is the way to stop bank failures. The plan of buying mortgage backed securities from the banks without taking an equity stake (which meant the government would be giving loans instead), which was the original plan, would have increased the asset and liability sides of the balance sheet without affecting net worth. Bank failures would've still occurred.

All of Europe is undertaking the same plan. I imagine there will be a coordinated effort to ensure irresponsible lending practices will be curtailed.

That was a clear, easy-to-understand explanation. Thanks for posting it.

There's a mighty fine line between debt and the "preferred stock" that the government is forcing the banks to issue, as explained in this Forbes article.


Under the plan, the senior preferred stock sold to the government would pay a dividend of 5 percent for the first five years, and afterward would pay a dividend of 9 percent. The Treasury official said the increase after 5 years is an incentive to buy back the shares from the government at some point, as an assurance that the government is not permanently in the business of holding private bank stocks.

In addition, the official said, banks participating in the program will not be able to increase their common stock dividends until their participation ends.

More... (http://www.forbes.com/afxnewslimited/feeds/afx/2008/10/14/afx5551548.html)

[Sean]

It may have been needed but so was the invasion of Iraq and such but I don't hear you guys ringing that bell. Anything that preserves our way of life and country ... but these bailouts are a tad different.

Where is the responsibility?

Warriorbird 2.0?

[Keller]

I'm curious where these firms are going to get the capital to pay 9% coupons on hundreds of billions in loans.