Posted on 10/17/2008 1:44:55 PM PDT by george76
A few days ago, when Hank Paulson called the heads of the nine families to Washington and shoved cash down their throats, he announced that the banks would use this new taxpayer cash to lend.
They won't, of course. They'll hoard it like a starving family who has just been given a grocery cart full of food.
And after a few days of silence, even the banks are finally admitting that. So it's back to the drawing board for Paulson & Co.
Next steps?
Find a way to force the banks to write their assets down to nuclear winter levels, so 1) private investors don't have to worry about getting sandbagged and therefore invest more in the banks, and 2) the banks know they won't be forced to take more multi-billion dollar losses. Only then will the banks begin to lend again. And at that point, the only challenge will be finding people and companies to lend to, in an economy headed straight into the tank.
(Excerpt) Read more at finance.yahoo.com ...
The entire “bailout” is nothing but a socialist fiasco.
Blodget is a used scum bag....
If you cannot get a loan from your bank, go to five or six others. Not all banks are in the tank.
The money going to the banks in the form of non-voting preferred stock. Because of that, they are going to have to loan it out to preserve their earnings per share as the preferred stock will have first call on the earnings.
This guy doesn’t know what he is talking about.
Paulson: "Thank you, Mr. President, for making billionaires of every friend I have at Goldman Sachs.
The stock collapse they engineering just as in 1929 has made for oceans of inexpensive stock for them to now sweep up.
Oh, and thank you for throwing the election to my Democratic Socialist candidate, Barack Hussein Obama."
Sooo the Fed government will turn these banks into Fannie and Freddie?
Can’t imagine the gov. in charge of the financial markets! Nancy and Harry must be drooling...
You nailed that!!!!
Taht’s true, of course, but Dictator Paulson will never let them get away with saying so publicly. Look for these banks to be punished, since he has virtually complete control of th financial markets under the bailout bill and his decisions cannot be challenged.
No. They are injecting cash without controls but they are creating a situation that require banks to lend or change management.
At some point, possibly immediately after the preferred stock is issued, the public may be able to buy it from the government and we get our money back.
I think it is a pretty fair plan.
>The entire “bailout” is nothing but a socialist fiasco.<
BINGO We have a winner here!
The money going to the banks in the form of non-voting preferred stock. Because of that, they are going to have to loan it out to preserve their earnings per share as the preferred stock will have first call on the earnings.
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I don’t think so ,,, sure preferred has first dibs not on the earnings but on the earnings distributed as dividends ,, these banks will simply cut their dividends to the bone and account for the newly issued stock by listing a greater percentage of the company as being public ,, the existing common shares will then still represent the same percentages of the bank as a whole. Sure EPS will suffer but I don’t really think these banks care at all about that... and with no voting rights whats to stop the dividend cut?
What’s to stop the dividend cut?
Shareholders.
The Globalist Socialist Bailout isnt working.
Who is there right mind would listen to Henry Blodget? A man guilty of securities fraud, paying the SEC $4MM and keeping many other millions he made by lying to the public, driving up stock prizes and cashing in. Blodget is scum who should be doing time behind bars, not writing for some 3rd rate news org. Well I guess since he is banned from the securities industry for life, he had to find somewhere to tell his fantasy tales.
A convenient way to look at preferred stock is as “rate capped variable rate bonds”. They are most certainly not like common stock but do resemble bonds.
And they can be traded to the public like most other securities.
Bank stocks are generally not owned by hot shot day traders but by little old ladies who are looking for safe havens. Farmers own large amounts due to the variability of earnings in agriculture and both are looking for periodic payments (dividends). This may have changed since I was in banking, but probably not much.
“What’s to stop a dividend cut?”
Voting common shareholders will put the kabosh on that little scenario.
When they get the preferred, they are going to have to get busy to preserve earnings per share. Real busy.
There is a possiblity that companies will put the brakes on expansion and loan seeking behavior if Obama is elected. The plan will work really well with McCain in the hot seat.
A lot of companies are looking to expand operations, a lot of people are seeking loans to open businesses. So vote McCain/Palin.
Fears of Lehman’s CDS Derivatives Haunt Markets
Friday, October 17, 2008 4:44:56 PM · 8 of 8
Texas Songwriter to Texas Songwriter
I saw an interesting commentary yesterday regarding this matter. For weeks leading up to the Sept. 16, 2008 bankrupcy of Lehman’s it was widely noted that Lehman’s might be in a liquidity squeeze. Should that happen they would have to pay off the %158 billion in bond debt which was owed, leaving common stock holders with nothing. The hedge funds (which ones, we do not yet know) saw their kill opportunity, much like they did with Bear Sterns. Only this time it was affirmed premptively by Hank Paulson that the US government would not bail out anyone again (something which was illconceived and turned out not to be true).
The hedge funds began to short Lehmans heavily, driving down the stock value. Unknown to the public, and sanctioned by Chris Cox, SEC chairman, these same hedge funds had gone to AIG and bought $365 billion in insurance (credit default swaps) on Lehmans (a number said to be worth twice Lehman’s capitalization).
With a reckless disregard for the future of the country, the hedge funds bid Lehman’s down, down, down. Then they called the financial newspapers and put it on the street that Lehman’s was going under, which caused any willing to stand with Lehmans to bid it down to bankrupsy.
At this point these same HEDGE FUNDS, now with a $365 billion insurance policy to make a claim on, they await Oct.21,2008 to arrive. This is the date at which all capital writedowns are to be paid....the bond holders and the insurance policies (credit default swap holders).
A funny thing happened on the way to Lehman’s burial....within a few hours of Lehman being bankrupted, Paulson, Bernanke, your representatives, cut an $85 billion bailout package for AIG (remember Treasury cut $85 billion to AIG, and part of that deal was to PREMPTIVELy pay Goldman Sachs the $20 billion of Risk Coverage which Goldman had bought from AIG...in other words, Goldman was paid before making a claim to the anticipated AIG bankrupsy, leaving Goldman smelling like a white mushroom)(Paulson = Goldman Sachs).
Now to put the final twist on it, it seems that our GOVERNMENT, having assumed control of 79.9% control of AIG, is on the hook for 79.9% of the $158 billion in bond debt, the $365 billion in AIG insurance claims (credit default swaps)....all going to HEDGE FUNDS.
Let us recap.
Hedge Funds target a weak bank (Lehmans)
Hedge Funds plan a frontal attack on Lehmans
Before the attack, the HEDGE FUNDS buy $365 billion of insurance, just in case Lehmans goes down.
This is a perfect storm for the Hedge Funds because, Paulson had declared no more bailouts, but the HEDGE FUNDS knew that Lehmans, a too-large-to-fail bank, if it did go down, the US Government could not allow AIG to go down without destroying every bank in Europe, Asia, Australia, America. It was a calculated great gamble.
But not a gamble at all, you see. They bought the insurance on a dying bank. Then they burned the bank to the ground, knowing without a shadow of a doubt that the US Treasury would prop up AIG, an institution, REALLY too large to fail, and leaving the good old US taxpayer on the hook for over $523 billion dollars.
This was done with the “Arsenist Stamp of Approval” from the good old SEC and Chairman Cox.
Questions arise. How did Paulson, Bernanke, Cox, arrange an $85 billion bailout within minutes of Lehman’s failure? Lightning speed, I would say. Why did Goldman get their money from AIG up front? Good friends of Paulson are rewared, I think. Will the $523 billion payment be held up by throwing up a faux criminal investigation just to lengthen the “mental adjustment period” of very pissed off taxpayers? OR will the payment be made next Tuesday?
Folks, this is just the beginning of a sh*t-storm, the likes of which this country has never seen. I have my theories on it, but what say you? Will someone please explain this to me so I will not think what I am thinking about the Oval Office, Treasury, the FED, the banking industry in this country. My mind is wander off into places I have never been before.
A modest proposal: every bank given funds by the government must lend at the same rate they did in the past 4 quarters, or they will hereby pay 1% over the discount rate, increasing to 4% over time.
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