Tim “The Safecracker” Geithner is going to be demonstrating his deft touch for opening vaults this morning and we will take you there via liveblog.
As being well-prepared will help attenuate the degree to which you are blinded and blind-sided by bullshit rhetoric, you might be interested in reviewing this viewing guide from Baseline Scenario via Alea. Certainly, taking some Vitamin C and getting a tetanus shot before tuning in is a good idea.
Treasury Deparment
In a move which makes it difficult to determine if the government is emulating the Europeans or Warren Buffett (we like the Buffett angle much better) the government (we read this as “The Treasury”) is poised to slup up preferred shares in “nine top financial institutions.” Bad jokes about canceled ABC prime time programs aside, it will be interesting to see who the government thinks “The Nine” are. Is that a ringing endorsement, or a scarlet letter? What happened in there? (By which I mean, that smokey back room in the Treasury building). Will The Nine share some special, secret bond that is now totally inaccessible to other players in the market? (Oh, the pain of selling preferred, you could never understand- sorry, I want a divorce).
I suppose the alternative, as a victim of compelled preferred share issuance, is living through the horror that was giving in to the advances of Japanese bank executives. And after all that, you don’t even get a cigarette or the Good Housekeeping seal from the Treasury. I feel so dirty.
Update: “The Nine” = Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., Bank of New York Mellon Corp., and Merrill Lynch & Co.
U.S. Set to Buy Preferred Stock in Nine Top Banks [The Wall Street Journal]
U.S. Said to Invest in Citigroup, Goldman, Bank of America [Bloomberg]
Not only did the Treasury Department avoid a direct capital injection into Fannie Mae and Freddie Mac, it has also avoided making an explicit guarantee of the senior debt of the two mortgage companies. Many people expected that the government would explicitly back the senior debt issued by the two companies.
Instead of a direct promise to support the debt with the full faith and credit of the United States, the government has pledged to maintain a positive net worth at the companies, buy mortgage backed securities from them, continue meeting their business obligations, and provide a huge line of credit. The promise to maintain a positive net worth at the companies means that they will be able to maintain debt payments, and so it amounts to a back door promise on the debt. But nowhere has the government made a direct pledge to the bondholders. It’s still an implicit, “in effect” guarantee.
“I think that the stunner of what Paulson said this morning was not about the equity haircuts, but that they didn’t explicitly guarantee the GSE debt,” one DealBreaker reader writes. “This suggest that the fear of a flight from Treasuries and a consequent dollar run is real.”
