NY Times - U.S. May Take Back Equity Instead Of Loan Repayment - Stocks Go Down

[Median Democrat]

I wonder whether this has something to do with stocks going down 200 points today. Afterall, if the U.S. takes equity in bank stocks instead of demanding loan repayment, this dilutes shareholder equity even though it also improves the balance sheet of the bank, since the federal loan is no longer listed as a liability.

Of course, banks may prefer to give back the loan and simply sit on their capital, rather than lend money, to avoid restrictions on executive compensation and federal oversight.

http://www.msnbc.msn.com/id/30300700/


/snip

WASHINGTON - President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

/snip

[whoneedstickets]

1. This is bank nationalization without the heavy handedness ...

Krugman should be happy.