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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 rate
by 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 agoI agree, but the basic element (government money for stock) is still pretty progressive. And don't stocks involve valuation bidding among investors?
- mdasen 18y agoNot 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 agoRight. 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 agoDid 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.