As had been expected, The Treasury will begin to take equity positions in major U.S. banks. According to MarketWatch, "The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion."
The part of the plan that is rarely mentioned is that the government could end up owning huge percentages of very large banks. Citigroup (NYSE: C) has a market cap of $76 billion. What if the Treasury has to put $25 billion of equity into the big bank? The agency might not want to have a board seat, but it would need to have a substantial say in what happens with the financial firm. Otherwise, how are the shareholders protected?
It would be better for the Treasury to give banks very long-term loans. It would be less risky for taxpayers if the debt was senior to all other debt and common shares. And, someone in the government would not have to look over management's shoulders to make sure the average citizen was likely to get his money back.
Douglas A. McIntyre is an editor at 247wallst.com.
Comfort Zone Investing: Survival of the fittest -- letting some banks fail
Three All-American stocks for portfolio fireworks
Michael Jackson fireworks, the workaholic
Reader Comments (Page 1 of 1)
10-11-2008 @ 2:31PM
ATHELSTAN said...
Secretary Paulson lives in a perpetual state of "becoming". I'll bet this guy spent his childhood telling his teachers, "the dog ate my homework".
At last, after 4 weeks of failed initiatives he's getting around to buying bank stock. Where is all this "creativity" we keep hearing about in the Paulson Treasury? He's bought Sir Alastair Darling's idea! The creativity seems to be in the Bank of England.
Do you think Paulson could be "creative" enough to get the BOE to lend us the money to buy off these troubled bank investors, which is what Paulson is really doing, or simply get the British to take over the banks themselves and let the rest of us off the hook entirely?
10-11-2008 @ 5:23PM
David said...
Paulson should resign and go back to swindling investors at Goldman Sachs. He's a dangerous man simply because he is in Wall Street's pocket and works for them and not America. He has adopted a slogan and it goes. "WALL STREET UBER ALLES"