

Sign or else: The drama behind a $250 Billion banking deal - robg
http://www.nytimes.com/2008/10/15/business/economy/15bailout.html?_r=1&hp=&oref=slogin&pagewanted=all

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dpatru
As I understand it, the government was basically offering the banks money,
albeit on perhaps not the best terms. Banks could pay it back if they could
raise the money elsewhere on better terms. Every bank had to accept the offer
because not taking it risked disadvantaging them with respect to the other
banks.

The situation is similar to the stimulus package where the government gave
each taxpayer a check. I'll bet that many fiscal conservatives took the money,
even though they were against it in principle, because not to take it would
make them poorer with respect to those who did take the money.

When government inflates the money supply, it's really transferring some
wealth from those with the old money to those with the new money. This
"forces" people to compete to receive the new money.

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mdasen
I'm not so comfortable with this intervention. It's one thing to offer capital
during a crisis, it's another thing to force capital during a crisis at set
rates.

I'd be more comfortable if the government said, we are offering $250bn in
capital to American banks and those banks are able to bid for pieces of it.
Those with the most attractive bids will get it.

How is this different? Simple, it makes the banks offer as much in return as
they see in their interest giving the government the best deal. There's no
reason to reward companies that can't raise capital on the open market with a
sweetheart deal. If some banks are unwilling to bid up for that capital,
that's fine. They can look to the open market for capital or maybe (basically
just Wells Fargo) they're in a strong position from good management.

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robg
I agree, but the basic element (government money for stock) is still pretty
progressive. And don't stocks involve valuation bidding among investors?

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mdasen
Not in this case. There is no valuation bidding. The government just set a
rate without regard to the value of the companies individually or what the
companies would be willing to relinquish for the capital.

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robg
Right. I agree on that point. Still, the inclusion of stock for government
cash is a clear progressive step along those lines. Government may not know
the true value of the banks, and their assets, but the stock market will
ensure they get a return based on valuation bidding.

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lacker
It's good to see bankers acting like _they've_ been screwed by the government,
for a change.

