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TARP was a form of nationalization. It wasn't complete nationalization in EVERY case, but the government did buy bank common & preferred stocks. In AIG's case,

TARP was a form of nationalization. It wasn't complete nationalization in EVERY case, but the government did buy bank common & preferred stocks. In AIG's case, they bought 80% of all outstanding stock - essentially nationalizing them. Everybody else, it was pittances - a few % here and there. So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. Not all of the banks the FDIC has nationalized are insignificant ones. It started with IndyMac which is no small bank. The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I hardly think so. BOA is up from it's low of $3, to $11.70. Citigroup (the most damaged of them all) is up to $4.17 from a low of $1.xx - the gov't owns the biggest stake in Citi than most other banks. Yes, their prices aren't as high as it used to be, but these things take time.

pedrocr 16y ago
>So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. The banks were propped up by TARP and so their market value remained high. Without it they were probably all insolvent and so the cost of owning them would be basically zero. Otherwise the market would have been able to finance the banks. TARP was designed to feed money into banks in a very cheap way, the size of the wealth transfer from the taxpayer to Wall Street is staggering. Buffet himself got much better conditions than the Federal Government. >The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. There is now a quite explicit assumption that the federal government won't let the banks fail. With that and the Fed helping there's plenty of reason to think banks will continue to make money. That doesn't mean the crap on (and off) their balance sheets has stopped being crap. >So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I'm saying the markets are now useless to value the banks because the value being judged includes the federal government as a crutch. There is no market pricing for the value of the banks on their own.

pedrocr 16y ago

>So that goes to show the amount of money needed. If they spent so much money and only got a few % of each bank, how much more money would be needed to purchase the entire banks altogether. The banks were propped up by TARP and so their market value remained high. Without it they were probably all insolvent and so the cost of owning them would be basically zero. Otherwise the market would have been able to finance the banks. TARP was designed to feed money into banks in a very cheap way, the size of the wealth transfer from the taxpayer to Wall Street is staggering. Buffet himself got much better conditions than the Federal Government. >The notion that the banks are still technically insolvent - says who? I think the markets are the best indicator as to the health of the banks. As far as I can see, their bond spreads over Treasuries have fallen significantly in the last few months and their stocks have been rallying. There is now a quite explicit assumption that the federal government won't let the banks fail. With that and the Fed helping there's plenty of reason to think banks will continue to make money. That doesn't mean the crap on (and off) their balance sheets has stopped being crap. >So are you telling me that the markets (who are extremely sophisticated and thoroughly understand the banking industry) are being fooled by these banks? I'm saying the markets are now useless to value the banks because the value being judged includes the federal government as a crutch. There is no market pricing for the value of the banks on their own.