Bank Stocks Up, Mkt Down, Thanks Mr. President for the subsidy

[plugger]

Anymore need to be said?

Let's see, the government will convert its $40 billion in preferred shares into new equity in Citigroup yet ALL the common equity is worth less than $10 billion. What a great deal! (for Citigroup shareholders that is!)

Who is the administration protecting by not liquidating the banks and a good portion of the bondholders of the banks? Let's see:

1. China
2. Arab states
3. Prince Alwaleed
4. And best of all, OTHER BANKS

Hard to lay the boots to the same people you're begging money from (way to go Hillary, your begging is very becoming).

What a mess!

 

[Landis82]

Would you rather that the Obama Administration simply "nationalize" Citi and allow the shareholders to get completely wiped-out???

And before you answer, please be aware that Citi is essentially insolvent.

What's YOUR solution?

 

[crgarcia]

Banks are worthless

Even if their stock prices are surging now, soon or late may return to their intrinsic value (zero).

 

[plugger]

Quote from Landis82:

Would you rather that the Obama Administration simply "nationalize" Citi and allow the shareholders to get completely wiped-out???

And before you answer, please be aware that Citi is essentially insolvent.

What's YOUR solution?

Hi Landis. I don't want to get into a boisterous argument with you. But to your question, I think the government needs to put these banks into receivership. Wipe out the shareholders, and then take the remaining cut out of the bondholders. While it's an ugly step, it's necessary.

Then bank stocks rise everytime the government appears willing to subsidize the shareholders. They need to stop doing this. Allocating more resources to a failing sector or company robs the rest of the economy from much needed capital. The last decade has been one HUGE misallocation of capital in the markets. First the dotcom bubble with capital going to internet companies with no viable business model and then to housing and consumption during the housing boom. Yikes. This has got to end. More distortionary government policies will result in further misallocations and even WORSE economic growth.

 

[plugger]

And, I mean nationalization to simply mean receivership under government direction.