This is a GREAT post with updated info on the bailout – I recommend also watching the last part of the Zeitgeist movie as well.
Tonight we found out how the first $250B of the taxpayers $700B bailout of the financial system would get used. According to the bill passed by Congress this money would be used to buy bad assets off of bank balance sheets. Instead it is being used to purchase non dilutive preferred stock mainly in a small number of large banks. We were also told by treasury officials that they only expected to need about $50B of that money a month, and just wanted to the full amount in their back pocket. Well they are already going back to Bush to authorize the next round.
Ok, so the details (from NY Times)
Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch.
The goal is to inject massive liquidity into the banking system. The government will purchase perpetual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings.
Now here’s where I get pissed
1. NON DILUTIVE PREFERRED, that is the definition of moral hazard, you are bailing out a company yet rewarding those who made bad investments. We were told during congressional hearings by Paulson it was important for this money to be used in a way that didn’t reward the stock holders. The plan was to take large dillutive equity chunks out of banks that were bailed out via warrants or preferred stock. Guess we were LIED to!!!
2. Lets see Wells Fargo and Bank of America get rewarded with an extra $5B for getting a sweat heart FED back deal to take out a competitor. Yeah that gets a sets a good president. What do you want to bet, Wells and BofA new about this little kickback when they were at the bargaining table? Seriously, it appears the plan is too consolidate the whole banking system into a dozen or so “winners” that the Treasury has chosen to survive this mess.
3. It was absolutely critical for us to pass that bailout bill without much time for debate, yet a week and a half later, we’re using the money for a purpose not even authorized in the bill.
I guess my suspicions that this is simply a looting operation by the major banks has now been confirmed. This could not have been carried out in a way more beneficial for the bankers and the shareholders and less beneficial for the taxpayers. Hope you like your Citigroup, JP Morgan/Chase, Morgan Stanely, Bank of America overlords…
* The image on the right is what I think of Hank Paulson right now, and yes that’s the mask for my Halloween costume this year. These guys are more concerned with bailout out there buddies right now that solving the real financial crisis that is getting worse by the day, not better.