3 ms·

Sign or else: The drama behind a $250 Billion banking deal

16 points by robg 18y ago

mdasen 18y ago
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.
- robg 18y ago
  I agree, but the basic element (government money for stock) is still pretty progressive. And don't stocks involve valuation bidding among investors?
  - mdasen 18y ago
    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.
    - robg 18y ago
      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.
- neilc 18y ago
  Did Paulsen actually force the bankers to sign? There's a quote in the article that it was a "take it or take it offer", but it seems like the bankers eventually agreed to the terms willingly.
lacker 18y ago
It's good to see bankers acting like they've been screwed by the government, for a change.
dpatru 18y ago
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.

16 points by robg 18y ago

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.

robg 18y ago
I agree, but the basic element (government money for stock) is still pretty progressive. And don't stocks involve valuation bidding among investors?
- mdasen 18y ago
  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.
  - robg 18y ago
    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.
neilc 18y ago
Did Paulsen actually force the bankers to sign? There's a quote in the article that it was a "take it or take it offer", but it seems like the bankers eventually agreed to the terms willingly.

lacker 18y ago

It's good to see bankers acting like they've been screwed by the government, for a change.

dpatru 18y ago

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.