NY Times: U.S. may take ownership stake in banks

[antigop]

http://www.nytimes.com/2008/10/09/business/economy/09econ.html?_r=1&hp&oref=slogin

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.

The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt.

[defendandprotect]

1. BEGINNING of a sound idea -- we should nationalize, but this is similar

to what Carter did with Chrysler, isn't it?

[antigop]

3. No, I don't think so--with Chrysler, I think there were government loan guarantees, not equity

See http://www.time.com/time/magazine/article/0,9171,947356,00.html

I don't think the government ever took an ownership (equity) position in Chrysler.

[defendandprotect]

4. No ....Carter made them turn over some kind of commitment re the loan .....

I can't recall what it was called -- See Nader on that/C-span the other day --

and after they became profitable again, the government sold the warranties?

and made $400 million profit.

Again -- Nader reminds us of that history and if you want the whole story, see

that video from the other day.

[antigop]

9. No, I do not believe the govt was given actual shares--it was given warrants for the loan guarantees

http://uspolitics.about.com/od/economy/a/chryslerBailout.htm

In the Chrysler bailout, Congress approved $1.5 billion in loan guarantees for the company in 1979. In exchange, the company gave the government “warrants” representing a stake in the company. When these warrants were later redeemed, they provided $300 million in revenue to the U.S. Treasury.

A warrant is a right to buy the shares.

The article in the OP says:

The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares.

In Chrysler's case I believe the Chrysler's debtors received preferred stock, not the government. The U.S. government received warrants which were later exercised, adding money to the Treasury. I can't find anything that says in the Chrysler bailout, the U.S. government received preferred stock.

Sorry, I don't have any more time to research this...

[defendandprotect]

11. "and after they became profitable again, the government sold the warrants..."

as I said . . .

I believe Nader said the profits were $400 million ---

Again, see his video.

At any rate, they were forced to turn over "warrants" to

the government! They were held somewhat accountable.

[antigop]

12. But they were not preferred shares-- that's my point-- you asked if new bailout was similar

I guess it depends on what you meant by "similar".

In Chrysler's case (as far as I can tell) -- the US government got WARRANTS, not PREFERRED shares.

The OP mentions preference shares, not warrants:

The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares.

[defendandprotect]

14. The idea of "similar" being that some STAKE in company was turned over to

government . . . . despite the term you wish to use for it.

And, actually, I'd be for government taking over the banks that are failing.

As I said, "Nationalize" them . ..

[defendandprotect]

15. Here's the actual meaning of a financial warrant ....

In finance, a warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is usually higher than the stock price at time of issue.

Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond, and make them more attractive to potential buyers. Warrants can also be used in private equity deals. For instance, it was a common practice during the height of the dot-com bubble for a landlord of sought-after commercial real-estate to demand warrants from high-tech startups as part of the lease agreement. Frequently, these warrants are detachable, and can be sold independently of the bond or stock.

Corporations issue warrants to enhance the future value of their stock to the people holding it.

[antigop]

16. I'm familiar with what a warrant is...please read what it says..

"Warrants are frequently attached to bonds or preferred stock as a sweetener,.."

In Chrysler's case the warrants were not attached to preferred stock, as far as I can tell.

That's the difference I'm trying to point out...the OP mentions 'preference shares' for the current bailout. The Chrysler bailout had LOAN guarantees from the government and exercised warrants. The U.S. Government did not get preferred shares -- Chrysler's debtors received preferred shares.

Look, I'm done with this. You can continue to post if you like. I've tried to explain the differences in the two bailouts. I can't spend any more time on this.

So continue to post away. I'm done with this thread.

[defendandprotect]

17. You're talking about "differences" pertaining to TYPE of transfer . .. .

I'm talking about the need for some kind of a transfer . . . .

Not something for nothing!

Again . . . if YOU want to know specifically what happened at Chrysler, see the Nader/
C-span video posted here.

Meanwhile, I posted the info re "warrants" for the info of ALL . . .
not in response to your comments!

[antigop]

10. More info here...

http://news.yahoo.com/s/ap/20081009/ap_on_bi_ge/meltdown_paulson

The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

[Lint Head]

2. This would work. It would return the monetary system back into

a legal tender operation backed by real equity. :dem:

[defendandprotect]

5. And then we have to dump capitalism and corporations --

and/or keep them so highly regulated that they can't do anything but what they're
intended to do -- serve the public.

[Tandalayo_Scheisskopf]

6. One way this could be very good:

The really crazed speculators in markets, the ones who leverage the holy fuck out of their bets, will find themselves suddenly without a source to borrow walkin' around money from. That will stabilize a lot of markets and prices, far better than price controls ever will.

It has possibilities.

[TygrBright]

7. Yeh. That'll work.

>>Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.<<

Because we have SO much confidence in the Treasury Department!

That'll work, alright.

That explosion you just heard, BTW, was my LAST irony meter. And I don't have any money for another batch...

incredulously,
Bright

[nadinbrzezinski]

8. Oh you mean like oh Sweden and the New Deal era?

don't say ...

this isn't so?

Ah the back door equity is in a certain bill many round these parts hate

Oh and it did work like a charm in both Sweden and the US... why reinvent the wheel?

[Common Sense Party]

13. Supposedly, this was part of the "rescue" bill anyway.

these banks NEED to have some skin in the game. They MUST give some equity ownership up in exchange for the taxpayers' loan. Then when they get their guano together and things turn around, we can sell the shares for more than we paid and get our money back plus interest.