Bank of America: 'Paulson Plan Benefits Mostly Goldman, Morgan'

Surprise, surprise, surprise. Guess who the Paulson plan benefits?

Bank of America's (BAC) top credit strategy analyst says Paulson Debt Plan May Benefit Mostly Goldman, Morgan.

Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

"Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment," Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

Many banks may not participate in the Troubled Asset Relief Program because they haven't had to write down as much assets under accounting rules, meaning decisions to sell into the program would cause them to lose capital, Rosenberg wrote. Investment banks operate "under a mark-to-market accounting model while commercial banks hold assets at cost until realizing a loss (or until they reasonably expect one)," he wrote.

Even without sales by commercial banks and savings-and-loans under the program, the companies may be harmed as the disclosure of prices paid in the troubled-debt auctions force them to ``hasten the pace'' of their own losses, Rosenberg wrote in his report. Banks and insurers mark down certain securities and derivatives to market prices in their earnings reports, avoiding losses on others unless they deem the declines to not be temporary and provisioning against loans as they go bad.

Bank lobbying groups today asked Congress and the U.S. Securities and Exchange Commission to suspend a rule that forces companies to put a price on difficult-to-value assets such as subprime mortgages.

Here is a translation of that last paragraph: Banks are unhappy with the size of their bailout (of which they deserve zero), simply because Goldman and Morgan are getting a bigger bailout (of which they equally deserve zero).

Is it any wonder Paulson wanted his bill ramrodded through without debate?

1.8 Trillion dollar bailouts just do not go far enough these days. Everyone wants more.

Comments

[who:]

again, this is symptom not the cause. MS and GS came clean so they benefit more, Banks under different account rules not being realistic are prolonging the issue

2008 Sep 23 02:17 AM

[Bluechippie:]

I used to believe that Paulson was an unbiased person who toiled and sweat to revive the ailing financial system. However after the fall of Lehman Brothers, I am not so certain. Paulson will not Lehman Brothers down, but when it comes to Goldman and Morgan, the conversion from investment bank to commercial bank happened overnight. On 6/6 hindsight, it was no wonder as Paulson was the former CEO of Goldman. Hence I am totally for Nancy Pelosi to ask for protection for ordinary shareholder. Get off your high horse, Paulson and tell us honestly that the USD700 billion bailout is not only for Goldman and Morgan

2008 Sep 23 02:29 AM

[glassbox:]

Can someone tell me how much Paulson has in Goldman shares and options? Am I see a massive conflict of interest here?

2008 Sep 23 02:49 AM

[montag:]

I believe Paulson had to give up his GS investment to take the Govt. job.

2008 Sep 23 03:31 AM

[PeteK:]

I bet pretty soon someone will say Paulson pocketed 15% of the bailout money for himself.
Just wait & see.

2008 Sep 23 03:55 AM

[venividivici:]

My understanding is that Paulson had to sell $600 million of Goldman Sachs shares so he could take up his government appointment and that he did so tax free.

2008 Sep 23 05:25 AM

[Freefall:]

This is absurd. 700 billion will not be enough. Main street will pay a hefty price for this bailout ie. staggering inflation, higher interest rates and the problem will still exist.
Paulson has been wrong along on these issues what makes you believe he is right this time.
Let the crash happen now instead of dragging it out for decades.
Are we going to trust the same Govt. and Business entities that got us into this mess to now come up with a plan to get us out?!
Elections are coming up. There should not be one incumbant left holding a position! They are all incompetent if not complicant.
Tell Congress and the Administration to bail on the bailout!

2008 Sep 23 07:46 AM

[andyn:]

All hail KING HENRY.
I subjugate myself to you.
Now where is my bailout?

2008 Sep 23 09:04 AM

[Econ 101:]

Crooks and theives all! the reason this didnt fly right thru? Did GS and MS forget their campaign contributions???

Freefall:
A crash will be worse that '29...
probably more like '89, 1789...
in France...
Les Miserabes could be your life...

2008 Sep 23 10:03 AM

[garyjohn7:]

Paulson is the fox guarding the chicken coop. He was at the head of goldman, hence the perpetrator of the current crisis. Now, after he takes his millions in bonuses, he is in charge of fixing the problem. His fix, trust me I know whats best. I think I know what is best. Investigate who is responsible, and begin procedures to nationalize all that they have reaped, or maybe should be raped. Take back their bonuses, take their big houses, take their off shore accounts and put them in debtors prison. Just a thought.

2008 Sep 23 10:22 AM

[hroni:]

Referendum. Let the debt-riden, home-loosing average Joe decide if after the printing press has started rolling, he can't even afford food to eat or to gas up.

2008 Sep 23 12:15 PM

[Emerald:]

Inflation here we come! By the way, commodities and oil are still priced in U.S. dollars. I want Prince, Mozillo and all the culprets from Merill, Fannie, etc. to renounce their severence packages and return the bonuses they were paid post 2005. This needs to be part of the bailout package. However, this will not happen as the Republicans want a "clean" bill for Hammerin' Hank. This will be the largest government sponsored bailout for the wealthy this country will ever see! Buy foreign governemnt bonds and gold. Short the consumer and technology and sales will drop further through 2009. Sell into rallies.

2008 Sep 23 01:00 PM

[pochovilla:]

MISH:
I am starting to worry about you. First, I haven't seen a disertation on deflation in a long time. I know you are stressed by King Henry. Soooo take a breath and check out Barry's Blog
bigpicture.typepad.com.../
There is no TARP, it's all about SHIT (Securitized Hybrid Investment Trust Bailout Plan)

2008 Sep 23 05:11 PM

[lonie:]

Good article Michael.

There is no way ( Colonel Klink ) Henry Paulsen would favor his best interest in his thousands of shares in Goldman Sacs .Would he?
What in hell has this country's policies came to?

How much more crap do those in positions think the public will take before they start destroying the pack of political and financial Hyenas circling our camp ?

2008 Sep 23 09:03 PM

[lonie:]

I think now would be a good time for the public and states to begin a court case against the Federal Government for miss appropriation of federal funds , namely federal tax dollars.
As i understand the Constitution there is noting that says we should bail out private enterprise.

2008 Sep 23 09:13 PM

[woodsey:]

Uncle Sam can make some money here if he (congress) plays his cards right.

2008 Sep 23 09:29 PM

[Still Renting:]

If this thing goes through, I will see it like I see 911 and Pearl Harbor. Or like the day they "fully ratified" the 16th ammendment, or created social security.

It will be a huge slide down that slippery slope and, in the long run, do NOTHING good.

2008 Sep 25 10:55 AM

[Vikram Saxena:]

Mish:

Your interpretation of BAC comments is downright criminal. Just because GS/MS have been very aggressive in markdowns does not mean they will benefit the most. It is likely that in the reverse auction the price paid by the Fed will be closer to where the rest of the banks are marking the assets. Further MS/GS have little to no exposure to Sub-Prime; GS was short and MS took their hits an year ago.

Do you have anything constructive on how to fix the problem? All you do is shill for your asset management firm and spread FUD. The stock market wiped out close to $1.4T in value today, more than double of the $700B requested by Paulson to provide liquidity to the debt markets. You must be popping open the bubbly celebrating as Americans see their pension funds, IRAs and 401Ks get wiped out.

2008 Sep 29 10:39 PM