By MICHAEL GRAY
So the “Bad Bank” plan is being shelved or curtailed back according to Treasury insiders, who see the buying of toxic paper as too daunting.
If the plan as proposed went through, Uncle Sam would have owned or nationalized all of the banks. The marks that would have been put on the paper would have required Treasury’s Tim Geithner to offset the toxic writedowns with buying common equity to keep the banks afloat.
The equity purchases would have been on such a scale that other equity owners would be wiped out.
I thought we chose this tax dodger because he was in the room, when all this was going down and he would not have a long learning curve.
He should have known that Hank Paulson wanted buy bad paper until he ran the numbers and said something to the effect, Its more important to keep the ATMs working than it is to increase lending.
And with the government owning all the banks with roughly a $4T price tag, who will step in front of Uncle Sam to buy new shares so lending can begin? Not many.
So this morning President Obama says that Geithner will have an announcement about a plan this week to help credit markets and banking institutions.
I going out on a limb here to say the plan will focus on further capital injections into the beleaguered banks.
The feds may take common shares instead of the preferred, which do nothing for Tier 1 capital levels. The feds may also convert its preferred shares, which it got from the first round of TARP, into common shares.
This should be dilutive enough to existing shareholders.
But as Paulson was fond of saying late last year, it will keep the ATMs working.
Welcome to USSA
With this anticipated plan from Treasury, I expect to see a big Socialist agenda included in the guise of protecting taxpayers.
Under the United Socialist States of America charter bailed out companies will no longer be able to:
• Own private planes.
• Pay private club fees.
• Restrict top tier salaries to a percentage of the lowest paid worker.
• No bonuses in firm if you layoff workers.
• No bonuses in firm if stock price is down for last 12 months.
• No executive gyms or lunchrooms. All facilities open to all.
• No executive retreats or offsite meetings that exclude some workers.
I think you see where I am going with this. Mind you none of this will fix the current state of the credit markets but the agenda for social change will be fostered on these firms as a condition for future bailouts.
Hey it could be worse, you could be a 23-year-old coming out of Wharton, Harvard or Yale business schools with a finance degree into this landscape.
Nothing you have learned in the last six years will prepare you for what the banking and finance industries will look like in June.
For more on Wall and Washington and the cratering economy see: https://mgray12.wordpress.com