Bailouts forced on banks

Discussion in 'Economy' started by DamnYankee, May 15, 2009.

  1. DamnYankee
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    DamnYankee No Neg Policy

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    Documents: Paulson forced 9 banks into bailout
    Goldman Sachs, JPMorgan among institutions required to take funds

    Let's not forget who helped Paulson.


    [excerpt]
    Obtained and released by Judicial Watch, a nonpartisan educational foundation, the documents revealed "talking points" used by former Treasury Secretary Henry Paulson during the Oct. 13 meeting between federal officials and the executives that stressed the investments would be required "in any circumstance," whether the banks found them appealing or not.

    Paulson also told the bankers it would not be prudent to opt out of the program because doing so "would leave you vulnerable and exposed."

    [excerpt]
    The outcome of that fateful meeting — which resulted in the government taking direct stakes in the banks through $125 billion in preferred stock purchases — marked a shift in the government's strategy to fixing the financial system.

    The Treasury had first decided to use a chunk of the $700 billion financial bailout package to pay for taking partial ownership stakes in banks, rather than using the money to buy rotten debts from financial institutions. The idea was that the investments would instill confidence in the system and get banks to lend again following the freeze of the credit markets.

    The meeting was hosted by Paulson, Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and current Treasury chief Timothy Geithner, who was then president of the New York Fed.

    Documents: Paulson forced banks into bailout - Economy in Turmoil- msnbc.com
     
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  2. Annie
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    Annie Diamond Member

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    I'm glad someone else is paying attention. I've been highlighting this thuggery for awhile now:

    http://www.usmessageboard.com/economy/74965-is-tarp-criminal-2.html

    I understand the concern about Patriot Act, renditions, prisoner abuse, etc., brought up over the past 8 years. What I don't understand, with few exceptions is how those that have been sounding the warning, are now ignoring the true trashing of the rule of law and even separation of powers:

    washingtonpost.com

     
  3. DamnYankee
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    DamnYankee No Neg Policy

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    Gotta love the many "refused to comment" from Geithner these days. Must be that "transparency" thing....
     
  4. editec
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    editec Mr. Forgot-it-All

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    Yes.

    I can see how it might be possible for the FTC and Treasury to take over banks.

    IF those banks were holding toxic assets, assets which they were NOT valuing properly...

    OR which the The government DECIDED were not properly being valued...

    THEN they government could declare those banks insolvent and FORCE them to sell "prefered stocks" (which are more a debt instrument than a common stock) in order to TAKE OVER those banks.

    Is that the charge?

    That the government, STARTING IN THE BUSH ADMINISTRATION, CONSPIRED to force the banks into crises in order to take over those banks?

    If that is the charge then I have a question or two...

    IF the banks were NOT insolvent, that is to say IF their assets were not being overvalued..WHY NOT SELL THOSE ASSETS in order to get them off the books and PROVE the banks solvency?

    And if the banks truly WERE insolvent...

    why did the government bother to FORCE them to sell prefered stocks, when it could have legally just bankrupted the banks and taken over control of the banks assets entirely?
     
  5. chopcrazy
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    chopcrazy Member

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    Several reasons why a bank may not want to sell the assets. 1) Selling assets may not be a wise business move. If those assets are earning 6% and offset liabilities that cost 5.5%, then it would be unwise to sell the assets. It comes down to asset/liability management. 2) There may not be a buyer out there - it would need to be a wise move on the buyer's part as well. If selling toxic assets at a steep discount could yield a good return for the risk then a buyer might buy.

    Take a look at Goldman Sachs. I did a quick review of its 10-Q for the period ending Aug 2008. GS spent 14.6 billion on operations and investing over the preceeding 9 months, assets were 1.1 trillion of which level 3 assets (potential toxic) were 58 billion. For the three months ending Aug, GS made 810 million. The government gave GS 10 billion in TARP funds. From the looks of the financial statements, it does not appear that GS needed the money. GS was no where near insolvency for the government to take over in bankruptcy.
     
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  6. DamnYankee
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    DamnYankee No Neg Policy

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    Did you not read the entire article?

    [excerpt]
    Paulson wanted healthy institutions that did not necessarily need capital from the government to participate in the program first to remove any stigma that might be associated with a bailout. He told reporters during a news conference that the intervention was "what we must do to restore confidence in our financial system."

    The Treasury has since invested a total of $199.1 billion in more than 550 of the nation's banks, according to government data. Of that amount, $1.16 billion has been returned by 12 institutions.

    Several other recipients of the funds, including JPMorgan and American Express Co., have stressed their desire to return the money as soon as possible. The funds have become burdensome for banks due to the increased government scrutiny and limits on compensation that are contingent with the investment.

    Documents: Paulson forced banks into bailout - Economy in Turmoil- msnbc.com
     

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