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Help Me Understand This Bank Bailout Thing

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Help Me Understand This Bank Bailout Thing

Old 02-21-2009, 02:06 PM
  #1  
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Default Help Me Understand This Bank Bailout Thing


As is being reported by Reuters:

... Through the close, Citigroup's market capitalization had shrunk to $10.6 billion, making it worth less than asset administrator Northern Trust Corp (NTRS.O). Bank of America, the largest U.S. bank by assets, was worth $24.2 billion.

Both banks have taken $45 billion of capital from the federal government since October, and gotten a federal backstop on losses related to toxic assets. ...


http://www.reuters.com/article/newsO...20156620090221


CitiCorp worth $10.6-billion + BofA worth $24.2-billion = a combined worth of $34.8-billion.

How can the two banks be worth $34.8-billion when they got $45-billion of our tax dollars??? Where did that missing $10.2-billion go -- who got it? And didn't those two banks have any assets worth anything at all?!? Where did their value go?


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Old 02-21-2009, 02:11 PM
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Default RE: Help Me Understand This Bank Bailout Thing

Executive bonuses and corporate boondoggles?
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Old 02-21-2009, 02:24 PM
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The whole thing is "PFM" there never was any money...did you ever take real money and tell the clerk to put this cash in my account...no, you gave him/her a piece of paper and he/she gave you a piece of paper in return...

Now the US Gov't just gave any bank who said "we have no more assets" money was it just paper or was it really cash money...that should be the real question and the other should be "what do you have to secure this money we are giving to you" instead they continue to give executives the CASH and STOCKS. And demand that the Gov't stay out of their business, the same as the AUTO COMPANIES...

The movers and shakers are the only one's with any money/paper in their accounts...Those with the money make the rules for the rest of us to live by.

NOW YOU UNDERSTAND
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Old 02-21-2009, 02:35 PM
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TB Hawks - 2/21/2009 5:24 PMThe whole thing is "PFM" there never was any money...did you ever take real money and tell the clerk to put this cash in my account...no, you gave him/her a piece of paper and he/she gave you a piece of paper in return...Now the US Gov't just gave any bank who said "we have no more assets" money was it just paper or was it really cash money...that should be the real question and the other should be "what do you have to secure this money we are giving to you" instead they continue to give executives the CASH and STOCKS. And demand that the Gov't stay out of their business, the same as the AUTO COMPANIES...The movers and shakers are the only one's with any money/paper in their accounts...Those with the money make the rules for the rest of us to live by.NOW YOU UNDERSTAND


I can't hear you over the racket these printing presses are making....Our stock, the US Dollar, is getting diluted as we speak.
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Old 02-21-2009, 02:38 PM
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Default RE: Help Me Understand This Bank Bailout Thing

EyeBall

They had to have the money because they were counter party to derivative contracts
known as credit default swaps.

They were on the losing side of the trade and had to pay up !

So, the taxpayers paid the them and they paid the winning side of the contract



Please make a note that you never hear about the winning side of the trade ?
I suspect the biggest winners are private firms at the top of the food chain and power pyramid

it's fair to assume that some really smart people were aware of the incredible risks being taken, and they positioned themselves to benefit when these (toxic assets) failed


when Lehman went under the bankruptcy court paid zillions to JP Morgan the very next day



but maybe your confused about thier total worth after the share price collapse ?
it's possible to trade on the exchnage for less than your book value
some companies are trading for less than thier cash on hand

this is where the removal of the uptick rule was done to benefit some very big short sellers, they pound and pound and pound the shares down
They need to reinstate the uptick rule
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Old 02-21-2009, 02:52 PM
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Maybe this will help.

Lets say I have a boat worth $10,000. And I put a bag containing $40,000 in cash into the center console.

Then I set the center console on fire, and only $5,000 in cash survives the fire.

How much is the boat worth?

If you really want to know what happened, check out these two short videos. They are the best thing I have seen on this topic so far. Simple to understand, yet very good at capturing the big picture.

Part 1 - http://www.youtube.com/watch?v=Q0zEXdDO5JU

Part 2 - http://www.youtube.com/watch?v=iYhDk...eature=related
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Old 02-21-2009, 02:56 PM
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Hello Eyeball,

Their market capitalizaiton, the value of all shares outstanding, at today's very low prices represented the ownership value to the shareholders. (BTW--if either survive intact, buying now will yield a bushel of money later to buyers)

The US government "loaned" in excess of the current market cap to these banks. The banks owe the US gumment back, and hence these loans are liabilities. If the companies go under (aka bankruptcy) then the banks and us taxpayers lose everything. The "loans" become worthless, as well as the market cap. The loans will be repaid first on cents on the dollar liquidation of any assets the bank has.

As pointed out by a previous poster, these banks have balance sheets where liabilities currently exceed assets. It is interesting, that these banks are currently making lots of money. Their problem is, the amount they are making is being mopped up by their previous losses coming due, and the burden of interest they owe their debtors. They own securitized paper that is based on real estate that has little to no current market value. This is what bankrupted Lehman and Bear Stearns, and would have taken Merrill Lynch under had not B of A purchased them.

Hence the spurious notion....."too big to fail." I'd like to see these banks make it. It would be a great turnaround story. Plus, the taxpayers would get a decent to great return (8%) The "stock market" is betting against this happening, and that's why Citi has lost 91% of it's stock value. Short sellers are also driving down the market. Kind of like the reverse when they were bidding oil futures contracts so high recently.
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Old 02-21-2009, 03:00 PM
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All I want for a bail out is to get rid of the AMT - is that too much to ask? I promise I will spend the money.







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Old 02-21-2009, 03:16 PM
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No dice Grunt. Rumor has it you are one of the "RICH." Double taxes for you!
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Old 02-21-2009, 03:21 PM
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LI Sound Grunt - 2/21/2009 6:00 PM

All I want for a bail out is to get rid of the AMT - is that too much to ask? I promise I will spend the money.

Hear hear!




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Old 02-21-2009, 06:31 PM
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Eyeball - 2/21/2009 2:06 PM
Where did that missing $10.2-billion go -- who got it?
You must have missed the other thread on bank fees on unemployment benefits.

They probably charged the feds $10.2B in fees to accept the bailout money.

PS: Your math is off. There's a lot more missing than that. You're assuming they were worth nothing when they got the $45B.

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Old 02-22-2009, 07:39 AM
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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.
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Old 02-22-2009, 09:51 AM
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joenew61 - 2/22/2009 11:39 PM

...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.

I think you may have just hit it right there. That makes sense.
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Old 02-24-2009, 03:51 AM
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The only way borrowed money can increase the equity value of a company is if the market believes it will generate more in returns than the cost it has to pay for the funds. The fact that the government is involved blows that possibility right out of the water, especially given all the rhetoric that is being thrown around.
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Old 02-24-2009, 04:14 AM
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In other words...........Those banks are already nationalized. The Gubmint has given them more $$ than they are worth (as a loan, a securitized lo,an) So the Gubminty holds all the valid assets.
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Old 02-24-2009, 04:45 AM
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Yes and no. The government holds a more secured position than the common shareholders, but the common shareholders from a legal standpoint still control the bank, assuming that there are no clauses written in to the preferred stock that give the government control, or worse conversion privileges into common stock.
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Old 02-24-2009, 08:02 AM
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s_ebels - 2/24/2009 8:14 PM

In other words...........Those banks are already nationalized. The Gubmint has given them more $$ than they are worth (as a loan, a securitized lo,an) So the Gubminty holds all the valid assets.

Well, the govt holds preferred stock in AIG -- and AIG must pay 10% annual dividend on that stock. Having to toss out that cash is causing a hardship for AIG, so AIG is thinking it needs to convert the govt's preferred stock to general stock. That means it will not have to pay back the govt right away. It can do that after it fails, again.

Remember how we were told the govt was using our money to buy preferred stock, how we would get paid back, how it was a "loan" to AIG?!?

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Old 02-24-2009, 08:30 AM
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I guess you can blame the banks problems on the union
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Old 02-24-2009, 09:32 AM
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strikerthree - 2/25/2009 12:30 AM

I guess you can blame the banks problems on the union

No. I blame it on the bank's lawyers. There is nothing going on with the economy that wasn't caused by lawyers.

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Old 02-24-2009, 10:25 AM
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It was the government getting married to the banking system. It is just another step toward fascism. The government was not bailing out - they were doing like George Baily in "It's a Wonderful Life" and buying cheep!
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