Bailout Blowback Worsening Especially Abroad

Posted on November 4th, 2008 in Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

Now that TARP has gone from a 2 1/2 page blank check for Paulson to an over 400-page blank check for Paulson and the banks and money grab like never before seen in history, blow back is getting extreme.

Even though my hope was that the Treasury would not actually go out and overpay for toxic mortgage assets on the tax payers dime because it would have been a disaster, that was what was sold to the American public as the primary solution.  Apparently, only the law makers really thought that $700 billion was enough to go out and overpay for all of those big bad securities then sell them at a profit years down the road when they magically become worth something.

Initially, we were all told that if Treasury bought all the big, bad mortgage assets from the banks it would promote lending once again across all sectors. Even as Treasury changed the plan to capital injections immediately after passage, they sold it as the necessary step to promote lending.  Maybe it will, but not for a long time.

As feared, the banks look to be using the money for what I would use the money for if I were CEO of a bank – to acquire distressed banks for pennies on the dollar for their foot print and deposits. I would also use the money to plug holes in my own balance sheet and baton down the hatches so I am around several years out when the skies clear. The last thing a responsible CEO would do is start aggressively lending during the largest asset revaluation and de-leveraging period in history. Who cares about returns and share price at this point, its all about survival.

There is no doubt that the country would be far better off with 1500 strong banks instead of 8500 insolvent banks.  But the tax payer funding bank merger and acquisition activity without deploying some percentage of the TARP money towards much needed commercial and consumer credit will start riots.

In Europe they have the same problems with their bailouts.  But they added protocol up front and are now threatening to get in there to shake things up unless they open the coffers.

The French state has threatened to seize control of the country’s banks and fore top staffers unless they do their part to stabilise the economy by stepping up lending to companies in need.

The Telegraph: French Threatens to seize banks; German bail-out escalate

“The banks have got to open up credit to business: they have the means to do it,” said prime minister Francois Fillon, accusing lenders of hoarding cash. “We don’t think the banks are stepping up to task as necessary. We can withdraw the credit that we have extended to them under the state’s contract with the banks, and that will put them in difficulty. At that moment the question arises whether we should take an equity stake, change their managers, and assume control over their strategy.”

In Germany, HSH Nordbank – 59pc owned by the city of Hamburg and state of Schleswig-Holstein – rattled the markets yesterday by revealing that it would need €30bn in guarantees from Berlin’s €500bn stabilisation fund. It warned that further sums may be need`ed to meet capital adequacy ratios in the future.

2 Responses to “Bailout Blowback Worsening Especially Abroad”

  1. Don’t knock the French. We in the Uk are powerless to affect the banks even when we have bailed them out. They are raising rates and conditions and collateral for businesses that are in the same condition as they were a year ago./ The staff are now incentivize to cut the book by whatever means rather than the opposite and destruction of some perfectly good businesses will follow: especially the smaller ones who are being used by larger ones as a source of finance: eg Tesco has changed payment terms for non-food to 60 form 30 days for all suppliers. Real bastards. And those suppliers need help from banks

  2. Strange as it may seem, the most conservative and underleveraged of all Eurozone banks have been the French.

    Yes, they have their trading losses, but as far as lending goes, they have been more conservative than anyone else (they make the Germans look like drunken sailors).

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