The Hull Truth - Boating and Fishing Forum - View Single Post - Help Me Understand This Bank Bailout Thing
Old 02-22-2009, 07:39 AM
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Default Re: Help Me Understand This Bank Bailout Thing

The market value of the banks is usually expressed in terms of what the common stock is worth in the open market (shares outstanding times price per share). This is only loosely connected to the bank's net worth in terms of it's balance sheet. I don't believe that the bailout money was accounted for in terms of common stock, so giving them the money would only increase their market value if investors thought it meant that the bank would be worth more in the future than the X dollars per share of common stock that they thought before the bailout.

The money we gave them did not increase the amount of equity available to common shareholders, so at best it is neutral to the stock price. I believe the government got preferred stock. So in effect they got 45 billion in cash, and an obligation to the government of 45 billion. When you borrow a dollar, it doesn't increase the equity in your company.