4 ms·

At this point I believe this would be the best solution. It would prevent mass layoffs and prevent UBS getting put into a critical situation because of the bad

At this point I believe this would be the best solution. It would prevent mass layoffs and prevent UBS getting put into a critical situation because of the bad CS assets. For the tax payer it sucks but if we are bailing them out, then the bank should be ours. If something is too big to fail it should be nationalized or broken up.

NomDePlum 4y ago
The bank is worthless though? If anything it's an additional obligation to the taxpayer that they have to underwrite. Really puzzles me the logic of underpinning a market economy to the extent it's no longer functioning. No lessons learned from 2008 whatsoever.
- sschueller 4y ago
  It isn't worthless, it has 13% liquidity unlike for example Lehman Brothers in 2008 which had less than 3%. Biggest issues is the trust which is gone. CS has actually been on a turn around since last year. New leadership and new goal including significantly reducing investment banking.
  - NomDePlum 4y ago
    Is anyone else likely to buy them, or can they continue to operate if not nationalised? Losing trust as a financial institution is, and probably should be fatal, if it justified.
- H8crilA 4y ago
  If it is exactly worthless (meaning the equity is worth $0, but everything below equity in the capital stack can still be serviced) then the government is getting it at a fair price while doing something good along the way. For all the valid criticism of the handling of the 2008 crisis (e.g. moral hazard, unfairness vs the people that had their property foreclosed) it is worth to point out that the US government at large has made profit on the bailouts. Most of the assets recovered and were later either sold or expired, all together at a nice profit. I.e. the US government has successfully "bought the dip" from "panic sellers".
  - Denvercoder9 4y ago
    > it is worth to point out that the US government at large has made profit on the bailouts. Has it though? While it's true that proceeds under TARP exceeded spendings, the government has had to hold those assets for years, and had to pay interest on its borrowings during that time. Those interest payments might well have exceeded the profits of the asset sales.
    - H8crilA 4y ago
      Conveniently the short rate, the Fed funds rate was 0.00% - 0.25% until 2016, so I would say yes :) Also, even if it had to pay a little bit when adjusted for the cost of borrowing it's still a massive win. After all the government is nominally not a for-profit institution but rather an entity that helps their citizens (or at least tries to). But in this case it definitely turned out a lot better than one might have predicted at the time the program was launched.
      - thomquaid 4y ago
        Youre not accounting for inflation. The value of a dollar today is much more than the value of a dollar years later. Especially when inflation is 6%. The bailed out banks received $426B year 2008 dollars and the TARP dollars recovered are $442B 2014 dollars. In real terms, the Treasury should have recovered $467B 2014 dollars for its investment to have a 0% real rate of return. In fact, $25B real 2008 dollars were given to banks and never recovered.
        H8crilA 4y ago
        That does not matter because the Treasury funded it with their t-bonds and t-bills, not with CPI (with a small exception for the TIPS notes). The US government is running with a constant debt unlike say Saudi Arabia which has a massive fund. Though they also have bonds. Let me illustrate this with an example: 1. I borrow $1M at 5% p.a., for a year 2. I lend out this $1M to someone else at 7% p.a., for a year 3. A year passes 4. My debtor has not defaulted! Great, I collect my $1.07M 5. I pay back $1.05M 6. I am $20k ahead Nowhere in the above logic we need to know what happened to the CPI or any other inflation measure.
api 4y ago
What are the bad assets this time? Last time it was largely debt sausages made of ground up subprime mortgages.
- nairboon 4y ago
  Maybe the leftovers from their Archegos deal that went south.

NomDePlum 4y ago

The bank is worthless though? If anything it's an additional obligation to the taxpayer that they have to underwrite. Really puzzles me the logic of underpinning a market economy to the extent it's no longer functioning. No lessons learned from 2008 whatsoever.

sschueller 4y ago
It isn't worthless, it has 13% liquidity unlike for example Lehman Brothers in 2008 which had less than 3%. Biggest issues is the trust which is gone. CS has actually been on a turn around since last year. New leadership and new goal including significantly reducing investment banking.
- NomDePlum 4y ago
  Is anyone else likely to buy them, or can they continue to operate if not nationalised? Losing trust as a financial institution is, and probably should be fatal, if it justified.
H8crilA 4y ago
If it is exactly worthless (meaning the equity is worth $0, but everything below equity in the capital stack can still be serviced) then the government is getting it at a fair price while doing something good along the way. For all the valid criticism of the handling of the 2008 crisis (e.g. moral hazard, unfairness vs the people that had their property foreclosed) it is worth to point out that the US government at large has made profit on the bailouts. Most of the assets recovered and were later either sold or expired, all together at a nice profit. I.e. the US government has successfully "bought the dip" from "panic sellers".
- Denvercoder9 4y ago
  > it is worth to point out that the US government at large has made profit on the bailouts. Has it though? While it's true that proceeds under TARP exceeded spendings, the government has had to hold those assets for years, and had to pay interest on its borrowings during that time. Those interest payments might well have exceeded the profits of the asset sales.
  - H8crilA 4y ago
    Conveniently the short rate, the Fed funds rate was 0.00% - 0.25% until 2016, so I would say yes :) Also, even if it had to pay a little bit when adjusted for the cost of borrowing it's still a massive win. After all the government is nominally not a for-profit institution but rather an entity that helps their citizens (or at least tries to). But in this case it definitely turned out a lot better than one might have predicted at the time the program was launched.
    - thomquaid 4y ago
      Youre not accounting for inflation. The value of a dollar today is much more than the value of a dollar years later. Especially when inflation is 6%. The bailed out banks received $426B year 2008 dollars and the TARP dollars recovered are $442B 2014 dollars. In real terms, the Treasury should have recovered $467B 2014 dollars for its investment to have a 0% real rate of return. In fact, $25B real 2008 dollars were given to banks and never recovered.
      - H8crilA 4y ago
        That does not matter because the Treasury funded it with their t-bonds and t-bills, not with CPI (with a small exception for the TIPS notes). The US government is running with a constant debt unlike say Saudi Arabia which has a massive fund. Though they also have bonds. Let me illustrate this with an example: 1. I borrow $1M at 5% p.a., for a year 2. I lend out this $1M to someone else at 7% p.a., for a year 3. A year passes 4. My debtor has not defaulted! Great, I collect my $1.07M 5. I pay back $1.05M 6. I am $20k ahead Nowhere in the above logic we need to know what happened to the CPI or any other inflation measure.

api 4y ago

What are the bad assets this time? Last time it was largely debt sausages made of ground up subprime mortgages.

nairboon 4y ago
Maybe the leftovers from their Archegos deal that went south.