John Slater

TARP Funds to Common Stock: More Accounting Games

As I previously raised at mergers.com/toughtimes.../, the real issue is whether the Treasury is committed to protect the bondholders of the big banks. There is a great deal of capital in the banking system in the form of unsecured debt. In a normal world when a company goes broke some or all of the debtholders' interests will ultimately be converted to equity capital either in bankruptcy or in an out of court restructure. The current issue of The Institutional Risk Analyst(us1.institutionalriska...) makes a very interesting proposal for conversion of Citibank debt into equity, which would address the capitalization issue once and for all. It's time the Treasury explains in clear English why they are electing to further commit taxpayer funds to bailing out the bondholders.