Academic

With the big day on Wall Street, it now, surprisingly, looks like there's wind at the sails of the American government response to the crisis, which before today has looked either orthagonal or slow.  You can't say that the government hasn't exercised its bailout authority anymore:

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get  $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch.

A side note: State Street's CEO wasn't at the meeting where the capital was allocated.  They still got the money, but so did the other smaller institutions getting the as of this writing unknown $125 billion remaining of the $250 billion outlay. 

The question is: do the owners want the equity?   Mitsubishi won't be diluted by the government action, but we don't yet know what conditions Treasury is imposing, or what, exactly, the nationalization means for the existing equityholders of the banks.  We do know that the American response follows the British example. 

Okay, is this legal?  I think it is. As bailout czar Neel Kashkari said:

The law gives the Treasury Secretary broad and flexible authority to purchase and insure mortgage assets, and to purchase any other financial instrument that the Secretary, in consultation with the Federal Reserve Chairman, deems necessary to stabilize our financial markets -- including equity securities. Treasury worked hard with Congress to build in this flexibility because the one constant throughout the credit crisis has been its unpredictability.

I may be missing something, but I'm not sure where the Fed is designated to be the special consultant with Treasury.  Perhaps that's more related to the facts on the ground than the precise legal authority given by EESA.  But as we've already told you, courtesy of Congress, Treasury has the authority to do equity injections in lieu of buyouts.

Here's the Times on precedent for taking equity.