The Bush administration is expected to take stakes in the nation’s top financial institutions as part of a wide-ranging effort to restore confidence to the battered banking system, following similar moves by European governments that sent global stock markets soaring.
As part of its new plan, the government is set to buy preferred equity stakes in nine top financial institutions, according to people familiar with the situation. It’s unclear how much would be invested in each institution. The move is designed to remove any stigma that might come with a government investment.
Banks receiving government funds include Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Bank of New York Mellon.
Not all of the banks involved are happy with the move, but agreed under pressure from the government.
Read it all. Also, note that Nouriel Roubini is still concerned.
Pitty the poor stockholders who will see their own stakes diluted.
better diluted than evaporated.
This is not American. This is socialism. Send a message to Washington that this is unacceptable. Vote against your Representative and/or Senator(s) next month if he/she voted yes on this 850 billion monster power grab bailout plan that gave the Executive Branch of government the power to alter America in this radical manner. Exercise the power of your vote. This can be a huge step in returning America to its founding principles.
tgs: You have made your point. Now what do you suggest as an alternative.
let the free enterprise system work…that is what I would suggest
“let the free enterprise system work…that is what I would suggest”
Work for whom? That is the question.
“Let the free enterprise system work”
Caleb [#5]: Would you propose that we abolish federal deposit insurance?
This is a Preferred Stock purchase. Preferred Stock does not grant voting rights nor does it give an ownership stake. It is stock that generates a dividend and owners of preferred stock are paid before owners of common stock when a company’s assets are liquidated.
YBIC,
Phil Snyder
#8
So the government gets its cut before everybody, thus depressing the value of the common stock. And do you really think government will be a silent partner in these ventures? Are you ready for an Obama presidency (or, if you like, a McCain presidency) when government starts telling banks who its vendors and borrowers need to be?
Public ownership of the factors of production: this is socialism pure and simple.
If unregulated capitalism worked so well, we wouldn’t be here. It’s time to grow up and realize the “pure” ideologies of both sides don’t work to the common good.
Pure capitalism would let the banks fail and the stockholder’s be wiped out. They would then serve as an object lesson for the next round of stockholders in the new banks that would arise to satisify the demand for the services that they supply. The problem with this is that all sort of bad things happen in the time between the original bank collapse and the rise of their more prudent (hopefully) successors. Starvation and revolution are real possibilities; people alive today remember it happening in the US and especially Germany.
So I believe this is a reasonable compromise. The existing stockholders should be wiped out. It was under their watch (after all, supposedly they voted for the company directors) that these bad loans were made. The fact that they keep any equity is a bonus to them. But the government is stepping in to ensure that the services that these banks provide the rest of the economy won’t be lost for the time that it would take to set up their replacements.
Government is not and cannot ever be a neutral player in the market. It’s like quantum physics: government affects the market just by being there. Ventures that subsist on artificially cheap credit are not sustainable and must be allowed to fail–or negotiate terms with their vendors and creditors, who are lucky for the business at this point. Prices will fall, reserves will be built back–both these things are already happening. This is how recovery happens, not by the government propping up assets that the market has ALREADY DETERMINED are not marketable. Transactions are either liquid or they are not. Adding newly printed money distorts the supply-demand curve and compounds the previous errors.
It’s a little like a parent who pays off the kid’s credit card he ran up buying beer at college.
I notice the CEOs like the free market plenty – -after they make sure they are paid off by socialism out the door. What did Lehman’s guy walk with — 500,000,000. And did you see the smug SOB talking to congress?
Look, “Joe sixpack”, to quote Palin, can’t take another hit in this garbage economy. So, Government to the rescue not from any genuine concern, but to cover their rich friends and to avoid the Revolution.
I am a free-market believer, but this situation is not without precedent. I think it is a far better solution than the unrestricted loans the government was previously going to make. Even the Founding Fathers considered a national bank as worthwhile– especially Hamilton. Federalist Paper #1 maybe?