Craig Brown

Financial Institutions Step Away from Government Debt

Yes, that is what I meant to say. I caught the error last night on my blog and fixed it there, but apparently the Seeking Alpha editor had already grabbed the post for here.


On Apr 13 10:25 PM Joyful Alternative wrote:

> Did you mean the example's house is now worth $225,000? Otherwise,
> the illustration doesn't work. (Oh, and good luck to him trying to
> sell a house for what it's "worth.")

Let the TARP Games Begin

You must have missed the news that AIG was using the over 100 billion in dollars it is getting to commute (an insurance term that means to settle) all its CDS positions while the taxpayers are paying for it. Literally billions of dollars are falling in the bank laps if they are willing to tear up the CDS contracts they got from AIG. I am not saying this is the only or even principal reason for the reported profit, but I suspect it is he only reason. The world between the end of 2008 and the first two months of 2009 did not change in a way favorable to the banks.


On Apr 03 02:44 PM siew_wah wrote:

> Citigroup has proven itself to turn in profits for the first two
> months of this year and more profits should be rolling in this quarter.
> Moreover, the CEO has promised the government and shareholders that
> he will take only a token salary of $1 until he turn around this
> great American icon and the result has so far been positive. vested

Can Banks Spell 'Nationalization?'

The problem with answering questions on how different stakeholders or shareholders get treated in a nationalization is that nothing is set in stone here. In a bankruptcy you have a a very thick bankruptcy code you can refer to for all the rules on how things are done, not to mention a whole body of case law for precendent providing further guidance. In a nationalization, it is really up to the entity doing it, be it a legislative body, central bank, Treasury or some other body and they generally have fairly broad discretion in designing how it works. They have the money so they set the rules. I would not bank on any shareholders, walking away with anything more than pennies on the dollar. From the government's perspective, shareholders invested in a company and took the chance on that company failing, so they are not likely to have shareholders at the top of their list. Taxpayers usually are, and should be, more important in terms of who they are trying to protect. Sorry I cannot be more specific here, but we are all just flying by the seat of our pants on this one.

Can Banks Spell 'Nationalization?'

I suppose any nationalization could be structured to give current shareholders something if they later de-nationalize, but I would not hold my breath. I suspect the government would be more interested in trying to protect bondholders, simply because there are knock on effects in the CDS market if there are bond defaults. In any event, I believe I read after my post last night that the UK now has 70% of RBS, so it is pretty much already nationalized.