October 14, 2008

And then, right on schedule, the government part-privatized the banks


Right on schedule.

Any questions?

And now, the panic is over. And while the needed and justified dramatic drop in home prices worldwide continues, the cleanup, investigations and arrests can begin.

U.S. to Buy Stakes in Nation's Largest Banks

The government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. -- including the soon-to-be acquired Merrill Lynch -- Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.

Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government's response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.

50 comments:

gwk said...

Yet you're a big Obama supporter who will have his hands in mine and your pockets but hey anything for socialism and yes I did tip you from my pocket thanks.

Anonymous said...

Just wait till O'Bama gets in. Here are his latest proposals:

- freeze foreclosures for any bank participating in the bailout, ie every bank

- make unemployment benefits tax free

- extend unemployment benefits for another 13 weeks, on top of the existing 26 weeks, so 39 weeks of tax free income for sitting on your ass

You idiots complain about Bush being a socialist and then will vote for a communist

a.creampuff said...

"possible losses" - yes, indeed - it seems "possible". Quite possible.

Paul E. Math said...

Doesn't this kinda turn all the big financial institutions into GSEs?

Don't all these big banks (and I'm a subsidiary employee of one of the banks you've mentioned) just become Fannie Mae and Freddie Mac?

Won't these banks now receive pressure from Congress and the White House to pursue a dual mandate? (ie: their original shareholders still demand stock price maximization but now the government will demand that they loan money to entities that perhaps might not otherwise qualify)

What happens when banks are pressured to lend to businesses (maybe those cosy with certain congressmen and women) who are the corporate equivalent of the subprime mortgage borrowers?

I've got a baaaaaad feeling about this one.

W.C. Varones said...

Warren Buffett got 10% perpetual preferred, plus tremendously valuable warrants, for investing in the cream of the crop, GE and Goldman Sachs. The taxpayers are getting 5% and no warrants for investing in the stinkier banks. That's a direct transfer of wealth from current and future taxpayers to Wall Street fatcats.

I suggested last week that the Paulson should lock in today's ultra-low interest rates on the liability side of the balance sheet by doing a massive 30-year Treasury auction. What he's doing now is the opposite: locking in ultra-low rates on the asset side of the balance sheet. Yes, the rate purportedly rises to 9% after five years, but that still may not be enough to compensate for one or two bank failures and/or long-run inflation. And can anyone doubt that the 9% rate will be renegotiated when the banks cry poverty and donate to Chris Dodd and Barney Frank's campaigns? Locking in low rates on assets takes inflation off the table and leaves default as the only solution to unsustainable government debt. Now, $250 billion of low-rate assets isn't enough to do it, but I suspect this is only the beginning.

(more here)

Anonymous said...

Hum. The government is good at buying things and then not utilizing them. Things like bombers and cheese. How does government "investment" in banks work? Being forced to loan to someone who's rate of failure probability was too high "organically" especially when the banks would prefer to cover liabilities with capital does not make sense. The government cannot assure success of the reciever of the loan.

Put another way ... suppose you owe Rocko $1000dollars or you are dead and I come to you and want to take out a risky loan and I am willing to pay off the loan at 10% but the odds of me defualting are 20%. You would pay Rocko and not give me the loan. The government steps in and says that it woll put up 10% of the loan to me. So you look and say hum I could loan this guy $900 and get back somewhere between $100 and $1100 or I could payoff Rocko with the $1000 and live to fight another day. You will pay Rocko and ignore the government.

The solution is that the government has to pay Rocko to get Rocko out of the picture. The problem is that Rocko doesn't want $1000 he wants somewhere upwards of $60 Trillion and even all the governments of the world don't have that.

If you ever wanted to know what it was like to be inside a system wide margnin call now you know.

Anonymous said...

move along now, there is nothing to see here.

Anonymous said...

National security is now a convenient shroud which enables special interests to pillage public funds with impunity.

Conflict of interest abounds and is being richly rewarded in this 'crisis' that was designed to enable massive theft.

Will prosecution of US Treasury embezzlement be off-the-table, too?

consultant said...

Not over. Not until a new sheriff is in town with new rules and ACTUAL enforcement of those rules.

The financial system has become criminal and corrupt. We know the home building/selling sector is.

Until the very people who perpetrated this Ponzi scheme are removed or jailed, they will continue their criminal, corrupt ways.

The easy way in finance has become just way too lucrative. If people feel there is absolutely NO downside to their bad behavior, they will continue to do it. That's how bad people behave. And the financial/housing sector is BADDDDDDDDD!

Problem NOT solved.

kilgore said...

What a coincidence!

The banks who are getting bailed out (Goldman Sachs, Citi, Merril Lynch, BofA, ect.) just happen to be the top contributors to both parties and both candidates.

I wonder if this has anything to do with the fact that nobody in government seems to be pushing for them to open up their books - particularly concerning the derivatives exposure.

goldman sux said...

Goldman Sachs is now a GSE.

The 'new' Federal Hedge Fund prototype.

Explicit taxpayer-funded market manipulation.

What a concept!

Anonymous said...

Bend over America! We can't let the rich white men in suits and ties over 50 can't lose a single fucking dollar because of the mess they've created with the help of the government.

Anonymous said...

Mission Accomplished.

Bushco has just completed its agenda of (unofficially) privitizing Social Security.

Anonymous said...

Here we go again.

In trying to save one bubble we can create another bigger bubble down the road.

Will we ever learn?

Mark in Philly said...

Not working too well in Iceland.

Stock market down 77% and they can not import any food (panic buying in the food stores). 2 weeks of food stocks in warehouses and then...I guess they eat fish for B/L/D

Go to Bloomberg to read the articles.

Cynthia Maniglia said...

OVER 100 YEARS AGO ...

Thomas Jefferson said, "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

HOMELESS!


What do you have to say to THAT?

keyser soze said...

I hear that 3 of the 9 institutions werre toast. My question is....which 3? It's strange to me that the government did this to hide the truth from us. Is it just me or do they treat us like infants?

Anonymous said...

I am unclear what that means for your average person? I own a small business and I am concerned about how that impacts the people I service including myself??? Help

Anonymous said...

I wonder if the dollar is a good absorvent... because at the rate its being printed and dumped, it will surely make a nice toilet paper...

Anonymous said...

U.S. to Buy Stakes in Nation's Largest Banks



Could be worse. At least the headlines aren't:


China to Buy Stakes in Nations' Largest Banks


....at least not overtly.

Anonymous said...

"...the big banks were unhappy about the government taking equity stakes..."

I say to these brave financial pioneers go it alone then.

You made your bed; nitey-nite and sweet dreams.

k.w. - Southern Ca. said...

Fees on late checks, ATM withdrawals etc... will go up.

Less choice - less options - higher fees.

thomas jefferson said...

Robbery. The hugest robber in human history. You're the victim.

vanilla ice said...

Yay! I'm the stock market making 1000 point swings in one week. I want bailouts but then I realize they aren't good enough to bail out my sinking ship. I don't know what I'm doing!

Anonymous said...

"Fees on late checks, ATM withdrawals etc... will go up.

Less choice - less options - higher fees."


There are no transaction fees in my safe... just a remington thats near it...

Anonymous said...

Question :

where is all that money coming from????

mean if you talk about millions you are out of the loop. Now the IN thing is to talk about Billions and Trillions

Somebody said to switch to Gold...There will never be so much Gold on this planet to cover those amounts.

It is all MONOPOLY money !!!!!

Anonymous said...

I wonder what happened to all those fervent free marketeers? You know, the ones that believed Milton Friedman about how an economy works, and patterned their personal lives after Ayn Rand? After all the financial sector was supposed to be populated by people who craved nothing else except the government not intruding into their businesses. And now there are all these Wall Street types rattling their gold cups in hopes of a handout. Strange business.

Anonymous said...

Lets give the robbers, all the keys to all the vaults. That will surely solve the problems at hand! Never mind prosecuting these criminals! Reward them.

I don't mind getting squicked, but at least kiss me before you squick me. There will be no kissing at this squicking!

Meanwhile 'mini me' I mean stamerin' hanks deciple, named 'kash N carry' gets to reward his fellow banksters with a nother round of taxpayer tit money, Personnaly.

And the sheeple cheer on with a 1000 point market rally.

Anonymous said...

Who said the rich keep getting richer and the poor keep getting poorer?

Anonymous said...

.




LET IT GO, PPT ZIONISTS CAME AT 3 PM SHARP TO TRY TO KEEP THE MARKET IN POSITIVE TERRITORY. DOES ANYONE BELIVEE IN THIS BULL$HTI ANY LONGER? IT'S ALL RIGGED!



.

Anonymous said...

.




RIGGED MARKET GOES DOWN 400 PTS = END OF THE WORLD.

RIGGED MARKET SKYROCKETS 900 PTS NEXT DAY = PERFECTLY NORMAL, MAKES LOTS OF SENSE


IT'S ALL RIGGED!



.

Adam SlowHand Smith said...

Bush isn't a socialist, he's a corporate fascist. He only helps the little guy when he is forced to.

The irony is, Obama is more fiscally-conservative than either McCain or Bush! He understands we need to pay for what we buy, unlike Bush's "you can have your cake and eat it, too, and heck, we'll give you a tax break as well!" policies.

Anonymous said...

Woohooo, Barney Frank will have lots of executive positions at banks to give to his boy-toys from West Hollywood.

Anonymous said...

Yeahhhhh...Pelosi is pushing for another welfare...oops, "stimulus" check...


...SO THE OBAMA BASE CAN ALL BUY NEW RIMS AND BOOMBOXES FOR THEIR ESCALADES!

Jonathan said...

"At least the headlines aren't:
China to Buy Stakes in Nations' Largest Banks"

Where do you think the money we are lending out to comes from... China!

Anonymous said...

...SO THE OBAMA BASE CAN ALL BUY NEW RIMS AND BOOMBOXES FOR THEIR ESCALADES!

October 14, 2008 9:07 PM

-------

how racist...the base is into Lincolns now. Escalade is so 2005.

Robbie said...

culminating with a move that rivals the breadth of the government's response to the Great Depression.

-----

What actions did the government take in 1929 to try to prevent the Great Depression?

Anonymous said...

I love all the Dem vs Repug talk. Here's a lovely little chart from the Times and Money Magazine. Sorta puts in perspective. But then again, the media has a liberal bias, as does all of reality.

http://www.nytimes.com/interactive/2008/10/14/opinion/20081014_OPCHART.html

Anonymous said...

I wonder what happened to all those fervent free marketeers? You know, the ones that believed Milton Friedman about how an economy works, and patterned their personal lives after Ayn Rand? After all the financial sector was supposed to be populated by people who craved nothing else except the government not intruding into their businesses. And now there are all these Wall Street types rattling their gold cups in hopes of a handout. Strange business.

-------

They are hypocrites.

At the first sign of hard times they abandon capitalism and rush into the arms of socialism.

They aren't true capitalists if they dump their beliefs so easily.

Anonymous said...

@ anon 7.36 pm

"Somebody said to switch to Gold...There will never be so much Gold on this planet to cover those amounts."

That's exactly why gold is going to %5000 / oz.'

Get it now!

Anonymous said...

I have come to understand that our democracy as it stood in the past was a sham of covert activity. The last thing that the hedge funds,big banks want is transparency that comes with govt investment. So the evil title of socialism is tagged to defeat that transparency from happening. Yes I am angry that I, as a Baby boomer, was tricked for 40 years to try to "improve and grow" for my betterment where in reality I was being harvested for my wealth creation. F%^k em all. I will now minimize my contribution and default on my obligations. I want a bailout too!

vanilla ice said...

"I wonder if the dollar is a good absorvent..."

It will be good for making kites.

Jared & Natasha said...

'gwk' was spot on with his comment about your support for Obama/socialism. Your blog used to have substance, but is now leaning more towards liberal politics every day. 'Still entertaining though, I must admit!

Anonymous said...

"The banks who are getting bailed out (Goldman Sachs, Citi, Merril Lynch, BofA, ect.) just happen to be the top contributors to both parties and both candidates."

That's all the money in the country, you know that, right?

Anonymous said...

It's not socialism, it's state capitalism. If it were socialism we'd have workers benefiting from the bank bailout, not wall street.

There would be some sort of input and control over the government institutions and the banks by the workers.

Right now, we have the state bailing out the banks with taxpayer money in order to keep capitalism running intact and functioning.

It's not a move to the left at all but a reinforcing of capital and the right.

http://en.wikipedia.org/wiki/State_Capitalism

Tarnsman of Gor said...

gwk said...
"Yet you're a big Obama supporter who will have his hands in mine and your pockets but hey anything for socialism and yes I did tip you from my pocket thanks."

Keith is not a "big Obama supporter." He was a Ron Paul supporter who decided that Obama is the lesser of two evils.

And none of Obama's plans call for anything close the order of magnitude of the debt and the spending that has taken place under Bush.

DOPES 2 said...

Wait a minute, did I not write something clever?!?!?!?!?

TOOLS!!!

DOLTS!!!

GET OUT OF THE MARKET BY FRIDAY . . . WHO DO YOU THINK INFORMS CRAMER!?!?!?!?!?

DOPES!!!

Anonymous said...

Hoover didn't do anything about the stock market crash . Than FDR enacted a few programs ,but the real thing that took us out of the 10 year long depression was the war machine of World War II .The War created jobs at home and in the military . Than after the War the expansion of American in the 50's with the building boom was a big
market stimulant . The Baby Boomers
were born in expanding economic times . The 50's were the care free days of rock and roll and
a new world of middle class expansion . The hippies of the 60's rejected the materialism
values post Depression and War culture only to end up going
along with it in the end .

It has been 60 years of advancement of the middle class that was the envy of the World ....
until now .

Lost Cause said...

What propitious timing that Goldman Sachs a bank!

Anonymous said...

If it was only that simple - the government nationalize some big banks and buy some stocks in some companies to keep the economy going.

It would be interesting if history would repeat itself, and future generation of kids read this in their history books.

The US government did not want to upset US voters with heavy taxes during the up coming election month so during the month of October, 2008 the government started borrowing huge amounts of money.

As frighten foreign investors park their money in US Treasury the US price index held stable.

The US Dollar actually gained in value against foreign currencies, so that prices of imported goods kept on falling.

Here was a golden opportunity to establish a stable currency.

However, fearing another credit crisis the US government kept issuing new money.

The currency in circulation increased by 50% and the floating debt of the Central bank by 100%, providing fuel for a new outbreak.

In December 2011, price inflation started again and by December 12, 2012 prices had risen 700%.