Bailout

The Heavy Hand of Government: Hank Forces Himself on Wall Street

By Admin

The Treasury is using 1/3 of it’s new authority to purchase preferred equity in the nation’s largest bank holding companies: Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America, Citigroup (C: 15.75 +11.62%), Wells Fargo, Bank of New York Mellon, and State Street.

• $25 billion is going to Bank of America, JP Morgan, and Citigroup
• Almost the same for Wells Fargo
• $10 billion for Goldman and Morgan Stanley
• $3 billion for Bank of New York Mellon
• $2 billion for State Street
• Hundreds of other public and private banks will also received equity investments

The taxpayers preferred equity will earn a 5% annual dividend that rises to 9% after five years. While Kashkari clearing indicated this morning that Treasury’s direct investments were intended to be voluntary, it appears this assistance was forced upon the bank chiefs meeting at the Treasury Department today.

While hardly mentioned during Paulson’s pleas to Congress, these direct investments have quickly become the cornerstone of the government’s intervention. Perhaps this was intended all along. Perhaps it was a necessary reaction to Europe’s lead. Or perhaps it was decided that these investments could happen far more quickly than auctions for distressed debt. In any case, Adam Smith and Karl Marx are huddling a bit closer together in their graves this evening.

Full post as published by Bailout Report on October 13, 2008 (boomark / email).