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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 underpinni

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.
    - Denvercoder9 4y ago
      > Conveniently the short rate, the Fed funds rate was 0.00% - 0.25% until 2016, so I would say yes :) TARP was a Treasury program, so wouldn't it have been financed by Treasury notes, which averaged about 2% during that period?
- NomDePlum 4y ago
  Interference of this sort in financial markets shouldn't happen. It invalidates the market aspect of it and transfers risk to the taxpayer. If the government wants to step in and effectively asset strip the company in order to soften the blow on individuals I don't really have an issue with that but the institution shouldn't continue to exist if it can't meet its primary purpose.
  - deleted 4y ago
    [deleted]

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.
  - Denvercoder9 4y ago
    > Conveniently the short rate, the Fed funds rate was 0.00% - 0.25% until 2016, so I would say yes :) TARP was a Treasury program, so wouldn't it have been financed by Treasury notes, which averaged about 2% during that period?
NomDePlum 4y ago
Interference of this sort in financial markets shouldn't happen. It invalidates the market aspect of it and transfers risk to the taxpayer. If the government wants to step in and effectively asset strip the company in order to soften the blow on individuals I don't really have an issue with that but the institution shouldn't continue to exist if it can't meet its primary purpose.
- deleted 4y ago
  [deleted]