The Real Reason Investors Dislike TARP 2.0

The Real Reason Investors Dislike TARP 2.0 - 2/11/2009

Home

Index of Filings

News and Press Releases

Filings

Decisions

Settlements

Litigation Activity Indices

Top Ten List

Annual/Quarterly Updates

Clearinghouse Research

Articles & Papers

Search

Related Sites

About Us

Local Rules

Sponsors

Register

_______________
Copyright © 2001
Stanford Law School

2009 News and Press Releases

SEARCH

News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

The Real Reason Investors Dislike TARP 2.0, The New Plan May Treat Taxpayers A Lot Better Than The Old One Did
Ronald Fink

FinancialWeek. February 11, 2009
_________________________________________________________________________

EXCERPT: Investors are not nearly as clueless as much of the press made them out to be yesterday. Indeed, the decidedly negative investor reaction on Tuesday to the Treasury Department’s new bank bailout plan may not have been fueled by concerns about the scheme’s lack of detail, which is how most media outlets painted the picture. Instead, investors were more likely worried about the strings that the Obama Administration attached to government aid. Sure, one pundit after another complained about the vagueness of the Financial Stability Plan, as the Troubled Asset Relief Program has been renamed. But in fact, the new plan was very specific about the price that shareholders would have to pay for further taxpayer largesse: Banks are barred from paying dividends above a penny a share, buying back stock, or purchasing rivals until taxpayers are repaid (or unless a bank gets specific regulatory approval). Oh, and the preferred shares that will be issued from now on in return for taxpayer capital will be convertible to common equity. Given those provisions, it was only rational for shareholders to sell on the news. Granted, the part of the plan for ridding banks of bad assets definitely lacked detail. So it’s unclear just how much taxpayers will be on the hook for there. But in his speech outlining the plan, Treasury Secretary Timothy Geithner specifically ruled out the loan guarantees that news reports had predicted were coming. Instead, the plan calls for up to $1 trillion in financing from the Federal Reserve for a “private-public” partnership that will buy the bad assets and warehouse them until they can be sold to private investors. “The federal government is taking them onto its balance sheet,” noted Viral Acharya, a finance professor at the London School of Business and NYU’s Stern School of Business.

Back to News page | Back to Archived News 2009 page | Back to Top

�