Could it be that certain experiences in childhood have driven boom-bust cycles into the financial DNA of the United States? What influences might create these deeply ingrained tendencies in the 13th generation? (I don’t think the two guys in the picture are supposed to look like they are jumping out of a window, but it looks to me like they are).
How They Got Game

The Dollar Dominatrix was on CNBC just now discussing the Citi, Wachovia deal, sounding less than ebullient. Her lack of enthusiasm was probably the result of a confluence of factors including her documented disdain for both banks, the “ten billion dollar hole WB just put in C,” and the fact that she’s currently in Vegas, and had to get out of her bed at the Bellagio for this shit. (JK: she’s been at the craps table since 7 am.) She noted she’s still “a seller” of Citi, which was probably to be expected. Chiming in to contradict Whitney was Hank Paulson, who said he “commends the action.” I know The Hammer can hold his own, but I’m not going to say I’m not still scared for him.

The FDIC insists that Wachovia didn’t fail. No really. They swear. So the fact that it is the FDIC that is making the announcement that Citi is buying the banking operations of Wachovia is really just coincidence. Seriously. See, we call it “open bank assistance.” As you can see that takes the emphasis off of negative and dangerous words like “failure” and refocusing attention on “open.” They were considering a “running bank rescue,” but that was before Sheila Bair pointed out the fact that a “rescue” implies distress and “running” sounds a lot like the bank executives are fleeing the jurisdiction.
Oh, Citi is assuming Wachovia’s senior and subordinated debt, but that’s just because Citi is an organization filled with generous souls who were moved into doing something to “give back to the community” after watching a really touching dog food commercial last night. You know, the one that asks “Shouldn’t you give the best to him too?”
FDIC: Citi to Buy Wachovia’s Banking Operations

“People are starting to think, ‘hang on, this is a rescue package but it’s designed to forestall a complete collapse, not stimulate a rally,’” said James Chirnside, who manages $65 million at Asia Pacific Asset Management in Sydney.

Asian Markets Retreat Despite Bailout Agreement [NYT]

Wachovia is reportedly in “advanced” talks with Wells Fargo. Citi has not yet been ruled out entirely, but WFC is said to be the “preferred bidder.”

8:54: Okay, someone please please dial in because the hold music sounds so damn familiar but I can’t figure out what it is and it is killing me.
9:00: I’m still on hold
9:02: Yes, Stairway to Heaven! And still holding
9:04 Michael Peace (?) takes the mic “this is very positive…we’ve worked hard with congress…it’ll be good…Neil from the treasury will go over how the warrants works and exec comp”
9:05 Broad discretion for the treasury
9:06 Neil takes the mic
You might’ve heard the headline number: seeking 700 bn. for residential and commercial assets. (yes, we’re aware). “we sought broad authority and flexibility”
- They might use the authority for “other instruments”
- Let us be clear: “targeted at financial system NOT failing institutions, though there are some institutions in that system that are, you know, failing.”
9:08: Any institution that has a “meaningful presence in the US” should be allowed to participate. Congress said they wanted: oversight, tax payer protection. OUR highest priority: “making sure it works”…it needs to attract companies to participate…warrants, exec comp were highly negotiated…we think we have enough flexibility to have a system that works.
- On warrants: tax payers should benefit
- Differentiates between “Market purchases” and “Direct purchases”
- Direct purchases: failing institutions that the treasury needs to help. “think bear stearns. think AIG”…we’ll be very aggressive…In future cases, we’d do the same thing…nothing new here. We’ll take as many or as few warrants as the treasury wants.
- Market purchases: institutions sell assets voluntarily. For companies that sell mor than 100 mm into this fund, they must give them warrants. Treasury had “broad discretion” to determine amount…For companies that sell more than 100 mm into this fund, they must then give warrants. Ex: if a company sells 200 mm, the first 100 will not have warrants associated, the second would.
- Unclear if bill gives them different powers in each situation or if they are just saying they will use “broad discretion” differently…Notes: “We don’t want just failing institutions to participate, we want healthy institutions!”
- Executive Comp: people were “very emotional” both dems and republicans…we don’t want to reward failure…in a direct deal, regarding exec comp, like aig, we’d prob fire management, get rid of golden parachutes. We feel this is appropriate.
- In market mechanism, the threshold is how many assets were put in the fund
- If they sell more than 300mm, then there is exec comp interference by us
- On a go-forward basis, for a 2 year authority, the firm cannot enter into new contracts with a “top 5 employee” that provides for a golden parachute. Existing contracts will not be touched.
- Tax provision: firms can deduct up to a million RIGHT NOW. if you contribute to the fund, that’ll be reduced to 500k.
- If there’s a loss after 5 years, the gov’t can attempt to recoup losses; would go to the entire industry and not just participants…analysis will be done, sent to president, then sent to congress for approval, though no real method in place at the moment
“WE’RE GOING TO HAVE TO BE NIMBLE…WE MIGHT HAVE TO PIVOT.”
9:20: mic goes to Bob Hoyt (sp?)
5 principle mechanisms for oversight
1. a board
2. a “significant role by” General Accountability office
3. Special “inspector general”
4. Congressional oversight panel of experts that will receive reports and conduct analysis
5. ample section on “reporting” on assets purchased, auction mechanisms, and how various “other purposes” are working
700 billion will come in tranches:
- 250 bn comes immediately
- when secretary determines he needs more, he’ll go ask congress for the next 100 bn (no time limit here on when Paulson can ask…could ask the day after he gets the 250 bn)
-when the secretary determines he needs more after that, he’ll go back to congress, and they’ll consider for 15 days (no time limit here on when Paulson can ask…could ask they day after he gets the 350 bn)
Questions!

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MEMORANDUM
TO: SIFMA Government Reps Committee
FR: SIFMA Washington Office
DA: September 28, 2008
RE: Conference Call w. Treasury / 9:00PM TONIGHT
At 9:00pm tonight, Sunday, September 28th, there will be a call with Treasury officials to discuss the Troubled Asset Recovery Plan. This call is specifically for analysts. Please distribute ASAP to analysts in your firm who might be interested in participating. We have also distributed this call notice through various SIFMA Committees to solicit analyst participation.
Please find the conference call information below:
Date: Sunday, September 28th
Time: 9:00PM ET
Toll-free Dial-in: 1-866-843-0890
Entry Code: 1812173#