A question about the infusion of $250 billion into the banks today… CitiGroup, JPMorgan Chase, Bank of America, and Wells Fargo will each receive $25 billion through this deal.
CitiGroup just tried to buy Wachovia for $2.1 billion, backed with government assistance.
JPMorgan Chase just bought WaMu for $1.9 billion.
Bank of America just bought Merrill Lynch for $50 billion.
Wells Fargo just bought Wachovia for $14.8 billion.
Why are we giving these banks money? If they are hurting so bad, how can they make these huge purchases?
The explanation I read earlier today has to do with market information. Paulsen wants to recapitalize all of the big banks to prevent pointing out which ones are hurting and thus causing a run. So, while maybe BofA doesn’t need the money, by forcing them to accept it (rumors are they didn’t want to) the Fed can make it less obvious which banks actually need the money.
I don’t see it as giving money. I see it as taking part ownership. With a view to getting their house in order.
I am extremely naive on the subject but I wonder why didn’t they do this sooner? Governments are bad, but free market capitalists are worse surely! Wasn’t this inevitable when you allow people adicted to fuckoff amounts of money to run free?
Let me get this straight.
If we nationalize the banks, it’s good for the economy and will strengthen our nation.
If we nationalize healthcare, though, it’s SOCIALISM and will ruin our nation.
From this conservative’s point of view, both are bad. I know a lot of people who agree. See the “what is wrong with the republican party” thread for more info. The .gov has no more business administering health care than it does running or owning banks.
Wrong guy to ask. I was born without many opportunities, yet somehow, I can afford my own health care. I understand the concept of generational poverty yet somehow, I cannot get behind the concept of the Feds stepping in to run/ruin the health care system.
There is no nationalization of the banks. Giving money to a private company is subsidizing it, not nationalizing it. There is no attempt to take control of the bank, run it for the benefit of the people.
What we have is a socialization of risk, without any idea of taking the potential gains out of the hands of the private sector.
Also, I’ve read a lot Republicans stress that this intervention is only temporary and that eventually things will get better and allow the government to sell their stake in the various banks, etc. and things will return to normal.
How likely that is I have no idea. But there doesn’t, to me, seem to be an ideological disconnect between this and their position on Healthcare.
That’s not how I am reading these proposals. In return for the money the Fed is taking an equity stake in the banks. If the banks value increases they will make money when they sell the stakes. These gains are required by the bailout bill to be used to pay down the national debt. They’re not just giving the money away. Am I misunderstanding this somehow?
Taking an equity interest and taking a role in the running of the company are different things. I just don’t see this as nationalization - it isn’t taking control of the commanding heights of the economy for the benefit of the workers “by hand and by brain.”
The Treasury is not giving the banks money. They are exchanging the funds for preferred shares of the banks. The shares are non-voting and will pay a 5% dividend each year for the first five years and a 9% dividend each year thereafter. A number of these banks don’t actually need or want the money; they were pressured into accepting the deals. The terms are not particularly attractive, after all.
We may at least pray this works out. I am dubious, but in theory it is not a disaster. Of course, when the best you can say about a plan is “It’s not a disaster,” this does not make it a good plan.
This method saw the light of day this weekend on the radio program “Moneytalk” with Bob Brinker. He mentioned that this way of capitalizing the banks wasn’t even on the table at that time and it should be.
The preferred shares produce income and the warrants protect the taxpayers. He pointed out that this method could actually produce a positive cash flow for the government and cited the Chrysler bail-out in 1980 as a positive example of this.
Maybe someone from the Fed was listening.
Clearly Treasury and the Fed have been following from the rear on this. Seeing how well a similar nationalization plan worked in England over the weekend was a large incentive for Paulson & co. to change their tune.
They changed their tune when the bill was passed though. They snuck in the ability to do this just before it passed. So either they snuck it in as a backup plan or something, or they planned to do it from the start, and came up with the original plan in an effort to not look like socialists and get it passed.