Bank stocks are rallying sharply this morning on the news that the administration and Treasury are developing a "good bank/bad bank" concept. However, whether this rally is justified is all in the details of the plan, which no one knows yet. For many banks, the concept of a good bank/bad bank scenario involves a binary outcome. Either the shareholders get screwed or the tax payers get screwed.
For instance, if the government just buys the assets from the banks and leave existing management in place, then the shareholders win. The government will essentially be buying toxic assets at an above market value and putting the burden on working out the problems and taking the losses on the government.
However, if the government takes over Citigroup because the company management teams have been incompetent, then the shareholders get nothing. It would be a repeat of Fannie Mae and Freddie Mac. The banks get put into conservatorship until all the assets get worked out. Bill Siedman, CNBC commentator who ran the original Resolution Trust Company, explained the concept in a recent interview on Fast Money.
Seidman said he basically nationalized many banks. He even states that the RTC would have nationalized Citigroup if the company hadn't gotten "saved" by Prince Al-Waleed. Siedman nationalized insolvent banks, fired and replaced management, sold off the bad assets and returned a "good" bank to the market. The problem with this method is that it takes guts, resolve and toughness. The government is basically taking the bank away from the shareholders and current management. Those parties will scream bloody murder.
In one scenario many bank stocks go to zero. In the other scenario, many bank stocks double. However, in either scenario, the overall tone of the market should improve as a huge overhand gets dealt with one way or the other.
I would guess that with the current administration the tax payers won't be the ones that will bear the brunt of the cost. President Obama doesn't seem to have the shareholder's or management's interest at heart. However, many Taft Hartley (union) and state pension plans have big exposure large cap bank stocks. Those plans would be badly hurt if shareholders were wiped out. In addition, buying the toxic assets gives the Administration a way to help homeowners and banks, but not look as much like they are coddling Wall Street. At this point, I think it is still a toss up which way the Administration will eventually lean.
President Obama doesn’t seem to have the shareholder’s or management interest at heart.
That was a beautiful line. He’s also already told Lobbyists that he doesn’t like them. (Financial times).
Far different than McCain would have for sure.
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Good point. I hadn’t tohugth about it quite that way. :)Your article looks nice!
Thanks for the comments.Now all became clear, I thank for the help and I hope to see more such articles.
O fools, they shall have a bible; and it shall proceed forth from the Jews, mine ancient covenant people. And what thank they the Jews for the bible which they receive from them? Yea, what do the Gentiles mean?
I will return all these things upon your own heads; for I the Lord hath not forgotten my people. Thou fool, that shall say a bible, we have got a bible, and we need no more bible.
Know ye not that the testimony of two nations is a witness unto you that I am God, that I remember one nation like unto another?
Your posting is informative and incredibly helpful
I may have joy again in the fruit of my vineyard; and perhaps that I may rejoice exceedingly, that I have preserved the roots and the branches of the first fruit.
both old and young, the first and the last, and the last and the first, that all may be nourished once again for the last time.
And if it so be that these last grafts shall grow, and bring forth the natural fruit, then shall ye prepare the way for them, that they may grow; and as they begin to grow
I just keep wanting to see more and more htopos. What a great shoot. I love the backgrounds (esp the perspective of the stairs). I bet they will never look at their porch again in the same way. Gorgeous, simply gorgeous work and I’ll 2nd that the love of this family shines through each shot. (tell G she MUST do a grouping)