Treasury Secretary Henry Paulson said Friday that the Bush administration will move ahead with a plan to buy stock in financial institutions. http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/meltdown_paulson
So, let's say I form a $500,000 company to buy bond. Can I ask the government to chip in $5mil? Oh, I forgot to mention that I will personally take all the interest and gain generated from this company as salary, bonus and golden parachutes.. If yes, where can I sign up?
Sure, US has unlimited balance sheet right? Wait, no. We have to issue treasuries? Wait, you mean yield will go up because we will flood the market with treasuries? Wouldn't that push up all rates? Oh sh*t. I never thought of that when I decided to do this. Oh well, this is ok, since rate will be up a little for EVERYONE instead of just financial companies. WE NEED TO SAVE THESE GOLDEN BOYS!!
Well, hello socialism. How well did it work when we mingled the private sector and the fed with regards to mortgages?
"Bank stock purchase plan" == Use investor's money to pay short term debts owned to FED: 1) People are pulling money out of banks. 2) Banks have already invested their money so there is no money left for withdraw. 3) Banks are insolvent, so they ask for short term lending from FED. 4) If Banks declare BK, FED won't get their money back. So FED told FDIC I don't want to see any bankrupcy. 5) Can banks sell shares to public to raise money? No, Bank American is the largest, it shows it didn't work, BAC share dropped 20% ... and if it's a small bank forget about it, no one wants to own small regional banks. 6) If small investors don't want to buy new shares, government has to. With the share price is so low, this kind of money injection would result huge dilusion like the AIG, government now owns 80-90% stake. 7 What does the bank use the money for, pay off FED short term lending. There are still no money left for struggling companies which need cash.
Some good banks can. Like BB&T. Its CEO is against the 700B bail out and his company is expanding and getting market share while other struggling. If they shore up the bad banks, they should at least give the same option to good banks too.
Anybody know if this is through direct open market purchase of stock or through capital injections & dilution?
My guess it would have to be capital injection through the issuance new preferred or common stock. That would be dilutive to existing shareholders. JPM would not need or want to do this, but C, MS or NCC might do it since their balance sheet is weak or perceived to be weak. The problem is that these 3 have stock prices that are really low right now. It would be very dilutive, but they may have no choice.