Lordie, do we have any rule of law in this country? Presumably, the twisted logic of forcing money on to bank in return for taking perpetual preferred was that making the banks ask for it would create a taint. But even with the Treasury’s sweeping new powers under the $700 billion rescue package, one wonders how it compelled banks to cooperate. The process by which this was done is alarming.
But here we go, virtually no restrictions (the Bloomberg article mentions executive comp limits, but given Paulson’s stance, expect this to be cosmetic), no (a la Sweden) having a disciplined process to figure out who was worth salvaging and concentrating rescue dollars on them, and having a strategy (consolidation, liquidation, spinning bad assets off into an Resolution Trust type “bad bank” vehicle) for the ones that didn’t make the cut.
The Swedish government showed a profit by taking deliberate action. Throwing money at a dartboard isn’t likely to produce good outcomes.
From Bloomberg (hat tip readers Jim Bianco, Robert R, boldface ours0:
The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.
The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment.
The injections represent a new approach for Treasury Secretary Henry Paulson’s attempts to prevent a financial market meltdown from sending the U.S. economy into a prolonged recession. He’s following similar interventions by European leaders and using broad powers Congress gave him earlier this month to save the country’s banking system.
“They’ve decided they need to do something drastic and this is drastic,” said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person.
The government will also guarantee the banks’ newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.