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TARP Club Membership Growing


Some thoughts on the bailed-out.


American Express (AXP) becoming a holding company was the price of admission to the TARP club. I would note that Morgan Stanley (MS) and Goldman Sachs (GS) also had to join the club.

Does it make it easy now for these firms to raise deposits? I don't really think so. And, notwithstanding all their rhetoric to the contrary, I think it is far more likely these firms will be bought by a bank than that they'l buy one (at least of meaningful size), but as members of the TARP club, they stay alive.

Other thoughts:

  • On AIG (AIG): Necessary and important to systemic risk. As a taxpayer, sorry we had to do it.

  • On General Motors (GM): Yes, we will bail them out (in some way). But, at least to me, all this does is buy time. $60 billion (what's left of TARP Part 1), if all applied as equity to GM, that would still just get the company's net worth to... drumroll please... Zero.

Moving onto Secretary Paulson's speech this morning:

  • On killing troubled asset purchases: It's about time. No one I know thought it would work. Worse, few banks have the common equity capital to take the hits. Most likely outcome of this change, however, is a major suspension of mark-to-market accounting for "certain" assets.

  • On helping the securitization market: It's necessary and not just for credit cards and auto loans. The mortgage market needs help too. Treasury has a choice - either subsidize borrowers or lenders. My guess is we see some of each.

  • On meaningful foreclosure relief: Not until the new administration takes office.

  • On private capital joining the government: Until the government demonstrates consistency, only senior to the government.

  • On the Global Challenge: I encourage everyone to read that part of the speech, for it gives you a wonderful sense of the multiple agendas going into this weekend's G-20 meeting.

  • Finally, the most important sentence of the whole speech: "Market turmoil will not abate until the biggest part of the housing correction is behind us."
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