A Headline from the NY Times, U.S. may convert bank bailouts to common stock:
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
Any person who is worried about undo political influencing decisions about who should and should not be extended credit should shutter at the thought, even implication of bank nationalization. The Obama administration, and the President himself have tried to stay away from any talk of nationalizing the banks as the political hit that will arise from a power grab of this magnitude would sink even his ratings. How does the government "vote" at shareholder meetings? Will congress now be the largest shareholder, pushing aside private capital? These are serious questions that need to be addressed.
Read the entire article here
Showing posts with label capitalism. Show all posts
Showing posts with label capitalism. Show all posts
Monday, April 20, 2009
Wednesday, April 15, 2009
Stress Tests and the Bank Situation
A good news piece from the WSJ this morning talking about the results of the Treasury's "Stress Tests" and how to handle the findings.
The Obama administration is considering making public some results of the stress tests being conducted on the country's 19 largest banks, said people familiar with the matter, a move that could help more clearly separate healthy banks from the weaklings.
Until now, the government has tried to treat all banks equally, pouring cash into both strong and struggling institutions to prop up the financial sector. The strategy has provided cover for beleaguered banks, which received funds along with their stronger brethren.
What the government has done through TARP and the capital injections has been to treat all banks that could be considered a systemic risk as though they all have, or might get the flu. The idea being that by inoculating all the banks with extra cash they will continue to lend.
This possible move, combined with first-quarter bank earnings and the push by some financial institutions to raise new capital and repay their bailout funds, could lay the groundwork for a new phase in the financial crisis. Within weeks, the stronger banks could emerge free of government shackles and flush with new funds, with weaker ones still reliant on federal largesse. That would transform how investors and the government view the financial sector.
Since announcing the stress tests earlier this year, the government hasn't made clear what, if anything, would be disclosed about the assessments. The Treasury originally suggested it would defer to individual banks to disclose results. But some regulators worried about banks selectively leaking information, causing a possible bias against rivals.
We should look at how these findings are released to investors, as we don't want to have a run on the weaker financial institutions. The truth is that we have signed up to support the flu-ridden banks until they get better. This is the fundamental problem with the intervention by the government. Banks that would have continued lending through the crisis and not over-leveraging themselves have been almost forced to over-leverage their balance sheets as the FEDS are forcing them to extend credit as a condition of the TARP funds. This is why the banks that are strong are doing everything possible to get out of TARP.
The stress tests were designed to build confidence that the nation's largest banks could weather a severe and prolonged economic downturn. Regulators are trying to determine how much assistance banks might need to continue lending in such circumstances. Banks that need more capital will get six months to raise it from private investors or take cash infusions from the government.
Banks not under the TARP protection will have an easier time raising capital than a large bank, like Citi, for instance. Investors know that the FEDS are in the capital injection game for the long-haul and are the lender of last resort. They should just drop the six months provision. They won't get the money from the market. We are trying to cure the flu with anti-biotics.
A senior U.S. Treasury official said the government will accept repayment of rescue funds from any institution whose regulator dubs it healthy enough to operate without federal capital.
The move to stop treating banks equally is sparking concern about the effect on specific institutions seen as weaker than peers. "You can create a run on a bank pretty quickly," said Eugene Ludwig, chief executive of consulting firm Promontory Financial Group and a former Comptroller of the Currency.
Of course you can create a run on a bank, just ask Chuck Schumer. However, I was under the impression that we increased the FDIC deposit insurance amount to $250,000 to prevent runs on the bank. What the government needs to do is make the "stress test" information available to the public so that they can choose what to do with their money.
Wayne Abernathy, executive vice president of financial institutions policy and regulator affairs at the American Bankers Association, said the government needs to provide information about the results but also protect examination data.
"I don't think they can ignore the appetite they have created for this information," Mr. Abernathy said. Having the government publicize some information would allow policy makers to control the message. "It's what can we say that is meaningful while still protecting the quality of that exam data," he said.
Mr. Ludwig cautioned that any information could give rise to mischief. "Bank exams are confidential for good reason," he said. "Given the kind of confidential information they contain, there is always the possibility of misuse or misinterpretation."
I fear that we will have some bad news come out of the release of the stress test results. Of course then again, the banks are lending free money so even a moron could make money, but we will see.
The Obama administration is considering making public some results of the stress tests being conducted on the country's 19 largest banks, said people familiar with the matter, a move that could help more clearly separate healthy banks from the weaklings.
Until now, the government has tried to treat all banks equally, pouring cash into both strong and struggling institutions to prop up the financial sector. The strategy has provided cover for beleaguered banks, which received funds along with their stronger brethren.
What the government has done through TARP and the capital injections has been to treat all banks that could be considered a systemic risk as though they all have, or might get the flu. The idea being that by inoculating all the banks with extra cash they will continue to lend.
This possible move, combined with first-quarter bank earnings and the push by some financial institutions to raise new capital and repay their bailout funds, could lay the groundwork for a new phase in the financial crisis. Within weeks, the stronger banks could emerge free of government shackles and flush with new funds, with weaker ones still reliant on federal largesse. That would transform how investors and the government view the financial sector.
Since announcing the stress tests earlier this year, the government hasn't made clear what, if anything, would be disclosed about the assessments. The Treasury originally suggested it would defer to individual banks to disclose results. But some regulators worried about banks selectively leaking information, causing a possible bias against rivals.
We should look at how these findings are released to investors, as we don't want to have a run on the weaker financial institutions. The truth is that we have signed up to support the flu-ridden banks until they get better. This is the fundamental problem with the intervention by the government. Banks that would have continued lending through the crisis and not over-leveraging themselves have been almost forced to over-leverage their balance sheets as the FEDS are forcing them to extend credit as a condition of the TARP funds. This is why the banks that are strong are doing everything possible to get out of TARP.
The stress tests were designed to build confidence that the nation's largest banks could weather a severe and prolonged economic downturn. Regulators are trying to determine how much assistance banks might need to continue lending in such circumstances. Banks that need more capital will get six months to raise it from private investors or take cash infusions from the government.
Banks not under the TARP protection will have an easier time raising capital than a large bank, like Citi, for instance. Investors know that the FEDS are in the capital injection game for the long-haul and are the lender of last resort. They should just drop the six months provision. They won't get the money from the market. We are trying to cure the flu with anti-biotics.
A senior U.S. Treasury official said the government will accept repayment of rescue funds from any institution whose regulator dubs it healthy enough to operate without federal capital.
The move to stop treating banks equally is sparking concern about the effect on specific institutions seen as weaker than peers. "You can create a run on a bank pretty quickly," said Eugene Ludwig, chief executive of consulting firm Promontory Financial Group and a former Comptroller of the Currency.
Of course you can create a run on a bank, just ask Chuck Schumer. However, I was under the impression that we increased the FDIC deposit insurance amount to $250,000 to prevent runs on the bank. What the government needs to do is make the "stress test" information available to the public so that they can choose what to do with their money.
Wayne Abernathy, executive vice president of financial institutions policy and regulator affairs at the American Bankers Association, said the government needs to provide information about the results but also protect examination data.
"I don't think they can ignore the appetite they have created for this information," Mr. Abernathy said. Having the government publicize some information would allow policy makers to control the message. "It's what can we say that is meaningful while still protecting the quality of that exam data," he said.
Mr. Ludwig cautioned that any information could give rise to mischief. "Bank exams are confidential for good reason," he said. "Given the kind of confidential information they contain, there is always the possibility of misuse or misinterpretation."
I fear that we will have some bad news come out of the release of the stress test results. Of course then again, the banks are lending free money so even a moron could make money, but we will see.
Monday, April 13, 2009
Goldman posts profit, will raise $5 Billion through stock offering to pay back TARP Funds
A news alert from the NY Times:
Goldman Sachs, the first of a string of banks to announce first quarter results over the next few weeks, also said it intends to raise $5 billion in common stock from the public. The bank said that new capital would help it return the $10 billion in government aid that it received last fall. Goldman will need approval from regulators to return the taxpayer capital.
In other news, an unnamed source within Goldman Sachs stated that the company was looking forward to running as far away from the Treasury Secretary as humanly possible.
Goldman Sachs, the first of a string of banks to announce first quarter results over the next few weeks, also said it intends to raise $5 billion in common stock from the public. The bank said that new capital would help it return the $10 billion in government aid that it received last fall. Goldman will need approval from regulators to return the taxpayer capital.
In other news, an unnamed source within Goldman Sachs stated that the company was looking forward to running as far away from the Treasury Secretary as humanly possible.
GM possibly filing for bankruptcy
An interesting news story...
The White House-appointed autos task force has given GM 60 days to come up with a restructuring plan and it is trying to determine whether the automaker can be a viable company.
Quoting sources who had been briefed on the GM plans, the Times said the goal was to prepare for a fast "surgical" bankruptcy.
The newspaper said preparations are aimed at assuring a GM bankruptcy filing is ready if the company is unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in GM and with the United Automobile Workers union.
A plan under consideration would create a new company that would buy the "good" assets of GM after the carmaker files for bankruptcy, the Times said.
Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years, according to the paper.
In the finest example of "new-speak," at least today, we are told that GM needs to be ready for a "surgical" bankruptcy. Or those of us who aren't morons like to call it, the bondholders getting hosed and the UAW getting a cash settlement before moving over to the "new" company.
What I love is how when a company screws the pooch like GM has done, the government needs to step in and create a "new" company to purchase the "good" or "bad" assets of companies that fail as they pose a systemic risk to the system. This used to be handled by the market-place through what is referred to as "creative-destruction," but obviously we are not smart enough to know what is good and what is shit.
Insulting. Here's an idea. How about a "new" company not involved with the FEDS "buys" GM and proceeds to "shed dead weight" or tell the unions to "piss against an electric fence" as a "good" company makes GM "profitable." Now, I know this sounds crazy, but I think that it has worked before. Here's another crazy idea. Maybe we should hop in our way-back machine and bail-out the buggy whip industry. The market needs to work. This is not a free-market.
The White House-appointed autos task force has given GM 60 days to come up with a restructuring plan and it is trying to determine whether the automaker can be a viable company.
Quoting sources who had been briefed on the GM plans, the Times said the goal was to prepare for a fast "surgical" bankruptcy.
The newspaper said preparations are aimed at assuring a GM bankruptcy filing is ready if the company is unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in GM and with the United Automobile Workers union.
A plan under consideration would create a new company that would buy the "good" assets of GM after the carmaker files for bankruptcy, the Times said.
Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years, according to the paper.
In the finest example of "new-speak," at least today, we are told that GM needs to be ready for a "surgical" bankruptcy. Or those of us who aren't morons like to call it, the bondholders getting hosed and the UAW getting a cash settlement before moving over to the "new" company.
What I love is how when a company screws the pooch like GM has done, the government needs to step in and create a "new" company to purchase the "good" or "bad" assets of companies that fail as they pose a systemic risk to the system. This used to be handled by the market-place through what is referred to as "creative-destruction," but obviously we are not smart enough to know what is good and what is shit.
Insulting. Here's an idea. How about a "new" company not involved with the FEDS "buys" GM and proceeds to "shed dead weight" or tell the unions to "piss against an electric fence" as a "good" company makes GM "profitable." Now, I know this sounds crazy, but I think that it has worked before. Here's another crazy idea. Maybe we should hop in our way-back machine and bail-out the buggy whip industry. The market needs to work. This is not a free-market.
Come on Down to Timmy Geithner's PayDay Loans
An excellent piece from the NY Times over the weekend:
Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury Department’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said.
“What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”
Stephanie Cutter, a spokeswoman at the Treasury Department, said it did not comment about the participation of specific banks in the plan or their efforts to exit the program.
Personally, I could give a hoot in hell that these bankers don't like that the government doesn't want to provide them with a reach-around as they try to escape the government shower room where they have been receiving frequent capital injections. Hank Paulson played Vito Coreleone with these bankers last fall, telling them that they had to take capital injections to keep credit flowing. Now, the banks which have been solvent, and will continue to be solvent are forced to pay a large settlement that is equal to a 60% interest charge on the money that was forced on them to get out from under the government's "protection."
Perhaps when these banks were told that they had to do this they could have said, "no." Would that have been so difficult. Saying no to Uncle Sam and telling them that they would allow the market to sustain or destroy them. That is the problem with the bail-out culture that we see ourselves in now. Us plebians could have told anyone of these titans of industry that by getting into bed with Hammerin' Hank and his capital injections would lead to government control over their operations. These bankers should pay the penalty and take it on the chin, proverbially. Government intervention will only lead to more government intervention, as the wheels of bureaucracy can't react to the market the way that a company without political interests can. That is the rub, since these banks have received TARP money, they are political whether they want to be or not. The best outcome is that these banks pay the fine and run as far away from the FEDS as possible
Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury Department’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said.
“What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”
Stephanie Cutter, a spokeswoman at the Treasury Department, said it did not comment about the participation of specific banks in the plan or their efforts to exit the program.
Personally, I could give a hoot in hell that these bankers don't like that the government doesn't want to provide them with a reach-around as they try to escape the government shower room where they have been receiving frequent capital injections. Hank Paulson played Vito Coreleone with these bankers last fall, telling them that they had to take capital injections to keep credit flowing. Now, the banks which have been solvent, and will continue to be solvent are forced to pay a large settlement that is equal to a 60% interest charge on the money that was forced on them to get out from under the government's "protection."
Perhaps when these banks were told that they had to do this they could have said, "no." Would that have been so difficult. Saying no to Uncle Sam and telling them that they would allow the market to sustain or destroy them. That is the problem with the bail-out culture that we see ourselves in now. Us plebians could have told anyone of these titans of industry that by getting into bed with Hammerin' Hank and his capital injections would lead to government control over their operations. These bankers should pay the penalty and take it on the chin, proverbially. Government intervention will only lead to more government intervention, as the wheels of bureaucracy can't react to the market the way that a company without political interests can. That is the rub, since these banks have received TARP money, they are political whether they want to be or not. The best outcome is that these banks pay the fine and run as far away from the FEDS as possible
Thursday, April 9, 2009
It could be worse...
This is depressing...
Only 53% of American adults believe capitalism is better than socialism.
Just a little over half of the population if the UNITED STATES OF AMERICA believe capitalism is better than socialism. As WFB used to say, the problem with capitalism is the capitalist and the problem with socialism are the socialists. Although do not fret...
Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.
Investors by a 5-to-1 margin choose capitalism. As for those who do not invest, 40% say capitalism is better while 25% prefer socialism.
There is a partisan gap as well. Republicans - by an 11-to-1 margin - favor capitalism. Democrats are much more closely divided: Just 39% say capitalism is better while 30% prefer socialism. As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism.
At least the free-enterprise system is still more popular. Also in a more generic poll 70% of respondents prefer free-enterprise. Maybe they mistook socialism and free-enterprise by the modifier "free."
I'm going to have a beer...
Only 53% of American adults believe capitalism is better than socialism.
Just a little over half of the population if the UNITED STATES OF AMERICA believe capitalism is better than socialism. As WFB used to say, the problem with capitalism is the capitalist and the problem with socialism are the socialists. Although do not fret...
Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.
Investors by a 5-to-1 margin choose capitalism. As for those who do not invest, 40% say capitalism is better while 25% prefer socialism.
There is a partisan gap as well. Republicans - by an 11-to-1 margin - favor capitalism. Democrats are much more closely divided: Just 39% say capitalism is better while 30% prefer socialism. As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism.
At least the free-enterprise system is still more popular. Also in a more generic poll 70% of respondents prefer free-enterprise. Maybe they mistook socialism and free-enterprise by the modifier "free."
I'm going to have a beer...
Thursday, April 2, 2009
Is this the end of Capitalism?
Daniel Henninger takes a pair of pliers and a blowtorch to the anti-globalization crowd
An Excerpt:
China wants a new global currency to replace the inflatable dollar. The managing director of the International Monetary Fund, Dominique Strauss-Kahn, has said the world financial system needs an "early warning system," which one guesses the rocket scientists at the IMF would provide. France's Nicolas Sarkozy wants a global "financial regulator." On Sunday the New York Times raised its hand to announce the crisis "has led to a fundamental rethinking of the American way as a model for the rest of the world."
Here's my two cents worth: Beware of real-estate salesmen.
The housing bubble that floated into view in 2007 is turning into the blob that ate the world. Real-estate mortgages and their derivative securities are a significant problem. That discrete problem, however, has been pumped up to an historic "crisis of capitalism."
Capitalism didn't tank the U.S. economy. Overbuilt housing did. Overbuilt housing tanked the economies of the U.K. and Ireland and Spain. If little else, we've learned that artificially cheap housing sets loose limitless moral hazard.
Read the whole thing.
An Excerpt:
China wants a new global currency to replace the inflatable dollar. The managing director of the International Monetary Fund, Dominique Strauss-Kahn, has said the world financial system needs an "early warning system," which one guesses the rocket scientists at the IMF would provide. France's Nicolas Sarkozy wants a global "financial regulator." On Sunday the New York Times raised its hand to announce the crisis "has led to a fundamental rethinking of the American way as a model for the rest of the world."
Here's my two cents worth: Beware of real-estate salesmen.
The housing bubble that floated into view in 2007 is turning into the blob that ate the world. Real-estate mortgages and their derivative securities are a significant problem. That discrete problem, however, has been pumped up to an historic "crisis of capitalism."
Capitalism didn't tank the U.S. economy. Overbuilt housing did. Overbuilt housing tanked the economies of the U.K. and Ireland and Spain. If little else, we've learned that artificially cheap housing sets loose limitless moral hazard.
Read the whole thing.
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