I’m of course being a tad facetious here, but I did find entertaining the description in the NY Times both of the terms of the bailout, and of the manner in which the US’s nine largest banks were encouraged to participate.
Regarding the terms:
The Treasury will receive preferred shares that pay a 5 percent dividend, rising to 9 percent after five years. It will get warrants to purchase common shares, equivalent to 15 percent of its initial investment. But the Treasury said it would not exercise its right to vote those common shares.
Hmm. An interest rate starts out reasonable enough, but a few years down the road suddenly jumps to an unaffordable level. The lender has the right to take ownership of your home bank — but nah, that’ll never happen.
Sound familiar?
On the “negotiations”:
The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left…. [U]nlike in Britain, the Treasury secretary presented his plan as an offer the banks could not refuse.
“It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.”
Really pretty amusing, IMHO.
that one of the big differences between the bank plan and the typical problematic mortgage is that the “one-page document” presented to the bankers was probably a hell of a lot easier to understand than the reams of paper presented to a person trying to take out a mortgage.
It is outrageous that the banks were muscled in this way. This is a free country, supposedly: they shouldn’t be forced to sell like that. Of course, any bank that didn’t sell would have been punished horribly in the market, but that should have been up to the banks. I can’t see why they wouldn’t have wanted more capital and support given the current environment. The UK’s approach was much more professional.
<
p>To the best of my knowledge, no one was forced to take out a mortgage, so the analogy seems imperfect.
<
p>The whole thing just seems ham-handed, improvised and rushed, as if second-raters were in charge. Which I think they are.
no bank was forced to participate. The execs could have given Paulson the finger and walked out, if they wanted to. Just because Hank Paulson tries to strong-arm you doesn’t mean you have to succumb.