Comment from (probably) my most savvy partner / client

[muck]

His comment:

"The US financial institutions have more than $500 billion of bonds and bank loans that are coming up for repayment / refinancing in the next six months. They think they can get it done with increasing the spreads on their earning assets. I'm not so sure they can pull it off without direct investment from the US government."

 

 

My thoughts about his comment:

Couple this with renewed emphasis today from Paulson regarding the UST's ability to make equity infusions directly into banks per the recently passed legislation, and I'm beginning to believe that the UST will begin buying preferred equity with warrants from banks across the country (possibly even internationally, in concert with other smaller countries like Iceland, to save the banks that are larger than the countries they are domiciled in).

 

So, if you see that "Bank XYZ" is issuing $20 billion of new stock 'to shore up their balance sheet' in concert with the UST investing $10 billion in a preferred equity paying a 10% coupon, plus warrants for $10 billion of common stock at the same price that the new $20B is being issued at ... don't be too surprised.

 

Some are arguing that this would allow for the banks to lever the UST's money 8x - 12x so that the US banking system can turn the $700B of liquidity / equity from the Treasury into $6T - 10T of "time" (which is probably the key determinant in sorting all of this out).

 

NOTE: I'm still hoping that, assuming this all works out ok, that the UST will convert these equity shares into dividends to the tax payers reducing the government's SS obligations going forward. I may try to fly to DC to talk to someone about this...

[MojoMan]

English translation please.

[cre8tiff]

English translation please.

 

We F0cked.

[The Irish Doggy]

English translation please.

 

 

Muck so crazy.

[Kid Cid]

So does this turn into a way of the US government nationalizing the banking industry by buying preferred equity in these institutions without telling the American public that is what they're doing? If I understand what your describing above correctly, the US government would own a significant, possibly controlling, chunk of any of these institutions. Is that correct?

[wiegie]

English translation please.

the US is getting into bed with a Swedish Model

[moneymakers]

I got an idea.

Why dont the banks allow people with good credit to refinance their home at 4% fixed.

Think that might get a few people interested in borrowing money again.

You can cut the fed rate all you want . Doesnt do much for the homeowner.

Let the people borrow money cheaply.

Edited October 9, 2008 by moneymakers

[Ursa Majoris]

So does this turn into a way of the US government nationalizing the banking industry by buying preferred equity in these institutions without telling the American public that is what they're doing? If I understand what your describing above correctly, the US government would own a significant, possibly controlling, chunk of any of these institutions. Is that correct?

That was my take from reading the paper this morning. I don't have any problem with this at all - partial nationalization will allow the government to get part or all of it's money back eventually. Simply buying all the crap will not.

 

ETA: It's not really nationalization, simply the government owning stock like any other investor.

Edited October 9, 2008 by Ursa Majoris

[TimC]

I said back on 9/25 the Government should buy preferred stock in these banks. Direct investment is the way to go IMO. Do I like the "nationalization" of our banks? No, but it's necessary short-term. Actually, this should hit fairly large for the taxpayers.