Posts filed under “Finance”
Speaking of anecdotal sentiment indicators: What does a Lehman Brothers’ broker do with his days now? Untucked Films found out. Directed by Chuck Divak and Jonathan Emmerling.
OMG, this is hysterical:
Perfect entertainment for a quiet Friday —
Hat tip: themessthatgreenspanmade
So far, we in the US have had an ad hoc, half-assed, on-the-fly approach to resolving the credit and financial crisis.
The smartest bailout approach to date has been the British/Swedish/Buffett approach: Inject capital at a corporate capital structure level by buying preferred stock, rather than at the balance sheet level by buying bad assets.
Now, we read that the Treasury is considering following these other, smarter approaches:
"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.
Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.
The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt."
Sure its a year late, and a trillion dollars short. Yes, this would have saved most of the firms that went belly up.
Better late than never . . .
UPDATE: October 9, 2008 2:18 pm
The way we have the government buys into a cop-any via prefereds is to match any private sector investment into banks on the same terms. So GE and Goldman Sachs get double the capital injection, and since Warren did it on those same terms, we know Uncle Sam isn’t getting ripped off.
If you cannot raise dollar one, Uncle Sam doesn’t waste any good money on you.
UPDATE 2: October 9, 2008 2:40 pm>
Greg Mankiw discusses a similar approach: How to Recapitalize the Financial System
5 Historical Economic Crises and the U.S. (February 09, 2008)
Global Financial Crises, Part II: Norway 1987 (February 10, 2008)
U.S. May Take Ownership Stake in Banks
EDMUND L. ANDREWS and MARK LANDLER
NYT, October 8, 2008
“Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming himfor telling you that you are sick.” -Dane Mott , JPMorgan Chase & Co. > The debate on fair value accounting, FASB157, and transparency continues apace. If you want to understand why this is…Read More
WaMu is now toast, forced into the waiting arms of JPM.
Here are the specifics from the Office of Thrift Supervision:
Receivership – With insufficient liquidity to meet its obligations, WMB was in an unsafe and unsound condition to transact business. OTS placed WMB into receivership on September 25, 2008. WMB was acquired today by JPMorgan Chase. The change will have no impact on the bank’s depositors or other customers. Business will proceed uninterrupted and bank branches will open on Friday morning as usual.
WaMu Fails, Is Sold Off to J.P. Morgan
Biggest Banking Collapse in U.S. History; Government Arranges a Deal to Safeguard Huge Thrift’s Deposits Branches
ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
WSJ, SEPTEMBER 26, 2008
JPMorgan Buys WaMu’s Deposits as Thrift Is Seized
Ari Levy and Elizabeth Hester
Bloomberg, Sept. 25 2008
Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett’s Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm’s borrowing costs and hurt its stock.
Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering.
Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn’t reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.