Today FED tested water, it won't work, Actually FED was a little bit panic after "spreading the rumor". If the government takes over and leaves share holders nothing, the entire financial system will collapse within 48 hours. Investor will lose trillions of dollars. US will never attract any investment. Next time, FED will try to buy out shares at current level, the question is which FED official is going to spread the rumor?
The share holder of these companies has the right of failure (even the companies might be technically insolvent.) So for these companies: The share price = value(market) + value(right of failure)
The Fed can do Chrysler type bailouts where the government gets common stock at a cheap price, but common shareholders are not completely wiped out. This can be a win win situation. If they had done this with BSC, the crisis would not be nearly this bad. IMO, big mistake by the Fed is setting a bad precedent.
That won't work. That's probably worse than just printing money outright and dropping it from a helicopter. Plus morale hazard is encouraged!
Anyway today's rumor and market reaction shows share holder's rights have to be honored. Especially the "Right of Failure"
I'll have to respectfully disagree with you. I'm sure there are laws being written as we speak that will take away the so called "Right of Failure" if some government agency determines the institution too big to fail. Just look at IndyMac.
the "BSC solution" is part of the landscape but that didn't help FNM or FRE after 3 PM today. if a bailout was really aimed at the common shareholder, I would have expected a key reversal in the shares, but that failed..
Good news for FRE, FNM and LEH, when rumor surfaced this week a big bank in trouble, everyone thinks it's one of the three, turned out it's IMB! IMB who cares! If LEH fails, LEH share holders will lose just 7B, but as a result GS,MS,MER will lose 20B and the entire market will lose 500B, how much LEH worth? Do you think GS will let LEH fail?