- The Big Picture - http://www.ritholtz.com/blog -

$700 Billion Dollar Attaboy

Posted By Barry Ritholtz On January 9, 2009 @ 6:35 am In Bailouts,Corporate Management,Regulation | Comments Disabled

Today’s must read MSM piece is a brutal Bloomberg column, delineating why the Bailouts have been such a sweet deal for the banks. Despite the gross incompetence and sheer recklessness of Wall Street and the Financial sector, they were handed massive amounts of money with little in the way of returns to the taxpayer, no specific guidance or requirements.

It was Moral Hazard writ large, essentially an encouragement of future speculative excess. and even less penalties.

Excerpt:

“Henry Paulson may be the most powerful manager of money in the world and he still couldn’t do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc.

The Treasury secretary has made 174 purchases of banks’ preferred shares that include certificates to buy stock at a later date. He invested $10 billion in Goldman Sachs in October, twice as much as Buffett did the month before, yet gained warrants worth one-fourth as much as the billionaire, according to data compiled by Bloomberg. The Goldman Sachs terms were repeated in most of the other bank bailouts.

Paulson’s warrant deals may give U.S. taxpayers, who are funding the bailouts, less profit from any recovery in financial stocks than shareholders such as Goldman Sachs Chief Executive Officer Lloyd Blankfein and Saudi Arabian Prince Alwaleed bin Talal, owner of 4 percent of Citigroup Inc., said Simon Johnson, former chief economist for the International Monetary Fund.

The transactions are “just egregious,” said Johnson, a fellow at the Peterson Institute for International Economics in Washington. “You want to do it the way Warren does it.”

Paulson’s decisions mark the first time in the nation’s 236- year history that the U.S. government has had to prop up the financial system by purchasing shares in institutions from Goldman Sachs, the most profitable Wall Street firm last year, to Saigon National Bank, a Westminster, California, lender with a market value of $3.8 million.

And that article gets even more critical from there. Go read it . . .

>

Source:
Paulson Bailout Didn’t Give Taxpayers What Goldman Gave Buffett [1]
Mark Pittman
Bloomberg, Jan. 9 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAvhtiFdLyaQ&


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/01/700-billion-dollar-attaboy/

URLs in this post:

[1] Paulson Bailout Didn’t Give Taxpayers What Goldman Gave Buffett: http://www.ritholtz.com/blog http://www.bloomberg.com/apps/news?pid=20601087&sid=aAvhtiFdLyaQ&

Copyright © 2008 The Big Picture. All rights reserved.