I still think this had to be done and sure, investing is supposed to be for the long term and not just a few months (during sane times, at least) but this still adds more fuel to the fire on the bonus discussion. If anyone in Congress had a spine they would shoot down any debate over whether bonuses are acceptable in such a state. They're not acceptable in any way. Case closed. With all of the damned Robert Rubin pals in the administration, one might think that someone - even Obama - might pull this bunch together and ask them why they continue to avoid what they must do.
Sheesh, Michael Froman is a Managing Director at Citi and is part of the new Obama team, somehow. Under no circumstances should Obama bring these people in to this administration until this subject is settled. I realize everyone became familiar with the "what does someone have to do to screw up and get fired" routine the last eight years but this is just too much. This Friends of Robert Rubin Club taking positions of power in the Obama team is wearing thin quickly.
Most of the Treasury Department's investments since late October have been in preferred bank stocks, more than $180 billion worth, with investments in giants like Citigroup and JPMorgan Chase, and many small community banks. But the government also negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion.Where is this going? If we're going to not only allow these banks to continue the 2006 lifestyle and even hire their senior executives, one does have to wonder where the hell it's all going.
The Treasury Department said it did not expect these common stock options to be profitable immediately and negotiated them so taxpayers could share in the wealth if the bank stocks recover.
Now, however, the value of that common stock is less than $18 billion. If the government exercised all its warrants to purchase the stock today, it would lose money on 51 of its 53 agreements. Taxpayers would be out $9.3 billion.
The government can exercise its options to buy the common stock anytime over the next decade, but the options were "immediately exercisable," according to banks' securities filings.
"The markets are saying this plan isn't going to work for the banks," said Ross Levine, Tisch professor of economics at Brown University. "They're asking where this plan is going."
