Banks Have To Accept Government Investment
The NY Times reports that the $700 Billion TARP has been revised to directly funnel money to nine banks.
Treasury Secretary Henry M. Paulson Jr. outlined the plan to nine of the nation’s leading bankers at an afternoon meeting, officials said. He essentially told the participants that they would have to accept government investment for the good of the American financial system.
The nine investments appear to be: Citigroup (c), Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS) and JPMorgan Chase (JPM), Morgan Stanley (MS), Bank of New York Mellon (BK) and Merrill Lynch and State Street Corp. (STT).
The preferred stock that each bank will have to issue will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years. The government will also receive warrants worth 15 percent of the face value of the preferred stock. For instance, if the government makes a $10 billion investment, then the government will receive $1.5 billion in warrants. If the stock goes up, taxpayers will share the benefits. If the stock goes down, the warrants will be worthless.
I don’t know where all this money is coming from, thin air I guess. And now analysts are estimating a budget deficit for 2009 of $2 Trillion!
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