It’s all a shell game

Reuters today, set out several scenarios for the bank bailouts, one being setting up a separate bank to “buy bad assets.”

But they contend that the problem with that is that

many banks are recording assets on their books at values that are too high.

This would result in the taxpayers bearing the burden of massive losses and the banks’ equity investors being handed a huge subsidy.

The alternative problem is

buying assets at too low a price would likely force banks to recognize major losses, which would weaken them further.

So I guess we are saying that we really don’t know how much these banks are worth and neither do they.

What we have been doing, is buying shares of preferred stock and warrants to boost their capital. But that isn’t working. So the idea has been floated to convert the preferred shares to common stock which, in the case of Bank of America, would make the bank’s

total tangible common equity…. instantly rise to $108.5 billion, giving it a tangible common equity ratio of 4.5 percent, 73 percent above the current ratio of 2.6 percent. Other banks could reap similar benefits.”

Again, this is just a numbers game. But does it bear any resemblance to reality?

Turning the preferred stock into common stock would instantly save the bank money it sorely needs, and would bolster a key measure of the bank’s capital strength by more than 70 percent instantly. Other banks that have received money from the Treasury, including Citigroup Inc, (C.N) could also benefit.

If it gives common shareholders the chance to get some money back and stabilizes financial companies, it’s worth considering. It seems like a no-brainer,” said Bo Brownstein, chief executive of Big Five Asset Management in Denver.

The move would not completely fix the banking system’s capital problems, but it would go a long way toward helping.

Helping what and who? Certainly not the taxpayers who will be paying the interest on this borrowed TARP money for the next two generations? Sure it would benefit the shareholders, because Lord knows we don’t want those who risked their money in the stock market to lose it.

What a crime that would be. But the article contends that

the government could receive change its preferred shares into convertible preferred shares that pay no dividend and have no voting rights. If done properly, the securities might be similar enough to common equity to soothe investors and rating agencies.

Soothe the investors and the rating agencies……..does anyone know how much any of these banks are truly worth? If so, please tell us and if not, let them all fail, let the investors lose their shirts, and the rest of the country can soothe them with a lullaby…….if that diamond ring turns brass papa’s gonna buy you a looking glass…..

And then you’ll know how Alice felt in Wonderland……..


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