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Welfare for strong banks?
From: David Farber <dave () farber net>
Date: Fri, 17 Oct 2008 12:33:42 -0400
Begin forwarded message: From: John Levine <johnl () iecc com> Date: October 16, 2008 9:42:37 PM EDT To: dave () farber net Cc: "Ronald J Riley \(RJR-com\)" <rjr () rjriley com> Subject: Re: [IP] Welfare for strong banks?
I noticed a NY Times graphic that showed CitiGroup, Bank of America and Wells Fargo as receiving $25 billion each in welfare money. OK, I'm no expert. Maybe someone who is an expert can clue us in as to why these reportedly healthy banks need these hefty infusions. Or, was "the system" gaming us again, pretending these institutions were sound when in fact they weren't.
You shoulda read the article that went with the graphic, or any of the other ones on the nine banks. Banks all over the country (and the rest of the world) aren't making business loans, because the huge writedowns on derivative junk have left them without enough capital to do so. This is a force-fed temporary injection of more capital. Partly the Treasury did it to all nine of them to get them all to start lending, partly because in this jittery market if they only did it to some of them, the ones left out would be perceived by other banks as having been too weak to be worth propping up regardless of their actual health. The "welfare money" is buying preferred stock on which the government gets a 5% annual dividend increasing to 9% after five years. That's a pretty rich dividend, the idea being that as soon as they can raise capital privately, they'll buy the government out and stop paying the dividend. As likely as not, when this episode is over, the government will end up making money on it. http://www.nytimes.com/2008/10/15/business/economy/15bailout.html R's, John ------------------------------------------- Archives: https://www.listbox.com/member/archive/247/=now RSS Feed: https://www.listbox.com/member/archive/rss/247/ Powered by Listbox: http://www.listbox.com
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- Welfare for strong banks? David Farber (Oct 16)
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