Bailout Homework:
Find a way to get our fair share(s)
Adam Davidson, who reports on matters financial for NPR’s Planet Money and PRI’s This American Life tends to describe the credit hysteria of recent months in more dire terms than I would use (again, it’s not that I don’t think there are big problems with our economy, it’s just that I just don’t think that the way the problem has been framed promotes solutions that benefit the majority). However, oddly enough (or maybe this isn’t odd at all), Davidson also sees reason for some hope based on language he believes made its way into the final bailout, er, um, excuse me, rescue bill that passed the House and was signed into law by President Bush on Friday.
The language relates to something called a “stock injection,” which, as I understand it, would require that the government get some form of stock from banks in exchange for our (by which I mean the US taxpayer’s) money instead of just acquiring the crap assets of no determinate value.
But there are, as I see it, a number of questions:
There seems to be some debate about the version of the stock injection provision that made it into the final bill. You’d think this would be an easy enough question to answer, but since this massive bill was rushed through and signed into law in an absurdly short time, when I look for the final version, I still can only find one House and one Senate version. Theoretically, the Senate bill (which was passed as an amendment to another bill, because, in actuality, it would be unconstitutional to start a bill like this on the Senate side) was sent to the House and passed unchanged on Friday, but until I see it, I will take nothing for granted.
Working from the Senate version, there is still a ridiculous amount of wiggle room. It seems to be at the discretion of the Treasury Secretary as to whether he wants to insist on equity, and as to what kind of stock he will seek, should he choose to do that. Will it be common or preferred? This could make a world of difference, especially if the bank fails. Preferred stock should recoup most of their value after liquidation; common, not so much. Amazingly, the bill leaves this open to the discretion of Treasury.
And, will they be voting shares? There actually seems to be language that encourages the government to take nonvoting shares, and if those are not available, seems to prohibit the government from exercising voting power. Voting shares would give the government power to influence whom is on the board, which, in theory, would give the feds power to fire the people who mismanaged the banks to a place where they needed government intervention. This seems to be just the kind of accountability so many demanded in the fight over this bailout. (It is also not without precedent, since when the FDIC steps in to rescue a bank, they have the power to relieve the board, and often exercise that power.)
There are also accounting exceptions for purchases under $100 million. Yes, that’s $100,000,000. Any purchase of assets valued less than that doesn’t need to meet the requirements of the stock injection provision. (This is apparently an improvement; an earlier version set the bar at $300 million.)
And this is just what I could figure out today. I am not a lawyer, I am not an economist, and I am not an accountant, so I am guessing there is plenty here that I don’t get, but here’s what I think I understand in the broadest terms: under the current regime, there is little reason for optimism. Hank Paulson was not enthusiastic about requiring equity in exchange for our money, so there is no reason to believe he will exercise his option to demand it.
However, by all accounts, there will be a new team moving into Treasury come late January, and only a portion of this bailout money will be turned over to Paulson before then. Will Paulson be able to spend all of his allotment on toxic debt before he leaves? I don’t know, but I bet he tries. Will the next Secretary of the Treasury, presumably appointed by Obama and confirmed by a Democratic Senate, be any more inclined toward demanding preferred stock instead of shitty assets? I can’t answer this, either. Obama’s economic brain trust includes many who had a hand in the fast and loose model that helped get us to where we are today—not to mention some very prominent Goldman Sachs alumnae.
So, while the questions and confusion tends to tarnish my perception of this potential silver lining, it could present some room for concerned citizens, who might have felt all was said-and-done with Friday’s vote, to continue to exert pressure. As has been noted throughout this crisis, Warren Buffet insisted on preferred stock as part of his package in exchange for his $5 billion investment in Goldman Sachs, and the United States Government should accept nothing less. I don’t know the degree to which voters can pressure Congress to in turn pressure Paulson to demand “Buffet shares,” but I would like to think that if we started now and continued through next year, we could leave an impression on the incoming Obama Administration.
(cross-posted on Daily Kos and The Seminal)
The language relates to something called a “stock injection,” which, as I understand it, would require that the government get some form of stock from banks in exchange for our (by which I mean the US taxpayer’s) money instead of just acquiring the crap assets of no determinate value.
But there are, as I see it, a number of questions:
There seems to be some debate about the version of the stock injection provision that made it into the final bill. You’d think this would be an easy enough question to answer, but since this massive bill was rushed through and signed into law in an absurdly short time, when I look for the final version, I still can only find one House and one Senate version. Theoretically, the Senate bill (which was passed as an amendment to another bill, because, in actuality, it would be unconstitutional to start a bill like this on the Senate side) was sent to the House and passed unchanged on Friday, but until I see it, I will take nothing for granted.
Working from the Senate version, there is still a ridiculous amount of wiggle room. It seems to be at the discretion of the Treasury Secretary as to whether he wants to insist on equity, and as to what kind of stock he will seek, should he choose to do that. Will it be common or preferred? This could make a world of difference, especially if the bank fails. Preferred stock should recoup most of their value after liquidation; common, not so much. Amazingly, the bill leaves this open to the discretion of Treasury.
And, will they be voting shares? There actually seems to be language that encourages the government to take nonvoting shares, and if those are not available, seems to prohibit the government from exercising voting power. Voting shares would give the government power to influence whom is on the board, which, in theory, would give the feds power to fire the people who mismanaged the banks to a place where they needed government intervention. This seems to be just the kind of accountability so many demanded in the fight over this bailout. (It is also not without precedent, since when the FDIC steps in to rescue a bank, they have the power to relieve the board, and often exercise that power.)
There are also accounting exceptions for purchases under $100 million. Yes, that’s $100,000,000. Any purchase of assets valued less than that doesn’t need to meet the requirements of the stock injection provision. (This is apparently an improvement; an earlier version set the bar at $300 million.)
And this is just what I could figure out today. I am not a lawyer, I am not an economist, and I am not an accountant, so I am guessing there is plenty here that I don’t get, but here’s what I think I understand in the broadest terms: under the current regime, there is little reason for optimism. Hank Paulson was not enthusiastic about requiring equity in exchange for our money, so there is no reason to believe he will exercise his option to demand it.
However, by all accounts, there will be a new team moving into Treasury come late January, and only a portion of this bailout money will be turned over to Paulson before then. Will Paulson be able to spend all of his allotment on toxic debt before he leaves? I don’t know, but I bet he tries. Will the next Secretary of the Treasury, presumably appointed by Obama and confirmed by a Democratic Senate, be any more inclined toward demanding preferred stock instead of shitty assets? I can’t answer this, either. Obama’s economic brain trust includes many who had a hand in the fast and loose model that helped get us to where we are today—not to mention some very prominent Goldman Sachs alumnae.
So, while the questions and confusion tends to tarnish my perception of this potential silver lining, it could present some room for concerned citizens, who might have felt all was said-and-done with Friday’s vote, to continue to exert pressure. As has been noted throughout this crisis, Warren Buffet insisted on preferred stock as part of his package in exchange for his $5 billion investment in Goldman Sachs, and the United States Government should accept nothing less. I don’t know the degree to which voters can pressure Congress to in turn pressure Paulson to demand “Buffet shares,” but I would like to think that if we started now and continued through next year, we could leave an impression on the incoming Obama Administration.
(cross-posted on Daily Kos and The Seminal)
Labels: Adam Davidson, Barack Obama, Henry Paulson, NPR, Planet Money, PRI, This American Life, US economy
posted by guy2k at 7:37 AM
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