Tuesday, January 13, 2009

Nancy Capitalism 2.0

(This humble blogger proposes a novel solution:

Wipe out the commons and preferred and then go up the capital structure and equitize until future equity participants either saw economies of scale or saw the need to break up the entity into smaller pieces. Perhaps the government would take a convertible debenture position, or equity participant notes , warrants etc.. as in previous bailouts so that there would in some situations be a return on the government's investments as the entity is put into some form of run-off. The process would be transparent in that taxpayers would know how their money was being spent, as in previous crises.

But noooooo....

B.S. Blutarsky thinks that this situation absolutely requires a really futile and stupid gesture be done on somebody's(taxpayer's)part. -AM

Jan. 13 (Bloomberg)
By Craig Torres

Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.

“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said in a speech today at the London School of Economics. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.”

Bernanke’s remarks indicate he may be seeking to influence deliberations among lawmakers and President-elect Barack Obama’s economic aides on how to deploy the next $350 billion of the financial-rescue fund approved in October. While some Democrats have focused on offering aid to troubled homeowners, the Fed chief’s comments show he’s more concerned about a continued choking off of credit to companies and households.

The Fed chairman recommended three approaches on troubled assets. Public purchases of the bad assets are one possibility, as was originally planned under U.S. Treasury Secretary Henry Paulson’s Troubled Asset Relief Program, or TARP.

The government could also agree to absorb, in exchange for warrants or a fee, part of the losses on a specified portfolio of troubled assets, he said. Regulators used that method recently with their bailout of Citigroup Inc.

Another measure “would be to set up and capitalize so- called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad banks,” he said

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