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Friday, February 06, 2009

Bailout: More Equity Stakes?

by Calculated Risk on 2/06/2009 01:04:00 AM

From the WSJ: Bailout Talks Turn to More Equity Stakes

The Obama administration's financial-rescue plan is shaping up to include capital injections with tougher terms than the first round and an expansion of an existing Federal Reserve lending facility that could potentially buy up toxic assets ...

Instead of buying preferred shares, as it did before, the government is discussing taking convertible preferred stakes that automatically convert into common shares in seven years.
To deal with the toxic assets at the heart of the financial crisis, the administration is considering expanding the Fed's consumer-lending facility, known as the Term Asset-Backed-Securities Loan Facility.
It is pretty amazing how the plan keeps shifting. I think they realize the bad bank is unworkable, but they can't take the next step and preprivatize the insolvent banks.