The terms of the conversion are specific to the specific issue of Preferred shares.
It seems likely that that is the process for retiring the Preferred shares ... the banks have to try to get their common share price up to the point where they can buy back the Preferred shares by swapping them for common shares which the Trustee can sell on the open market.
The Trustee, of course, stands the risk that the bank goes on to fail anyway. That is why a critical point that they have omitted to mention is the dividend rate on the Preferred Shares ... what is the penalty rate over the cost of the Treasury Bills to fund TARP 2.0, and is that a reasonable risk premium over the losses to be expected on Senior Preferred Shares from likely bank failures down the track.
I read that Paulson put a rate of 5% on the Senior Preferred Shares, compared to Buffet putting a rate of 10% on the deal he made to inject equity into one of these big institutions ... I'd be very surprised if Geithner had a rate more like 10% than 5%, and in the meantime the cost of funds has risen. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Done, everyone knows where they stand. "Open and transparent".
It seems like it takes more than a cabinet level post to take the student of Larry Summers away from the Wall Street insider operating assumptions. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Only then what? They get a "capital buffer" just because they submitted to the audit, or because the audit says they're OK? If the former, the audit is a pure formality, if the latter, the walking-dead banks will still be walking dead.
In any case, are we to suppose that this audit will do what others have failed to do up to now, evaluate the toxic junk?
What exactly is the problem here? Someone has to pronounce the dead banks, dead. And banks with more than $100bn in assets don't get to opt out of the audit of their balance sheets so at least the Federal Government will know what's on those balance sheets. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
banks with more than $100bn in assets don't get to opt out of the audit of their balance sheets so at least the Federal Government will know what's on those balance sheets.
Those off-balance-sheet liabilities have come back onto the balance sheets already.
But, really, I don't think any of those SIVs or off-balance-sheet "conduits" can still be standing after the last 18 months in the money markets. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
