Documents detail pressure from Treasury (Paulson) for banks to accept bailout

Source: CNN

NEW YORK (CNN) — Newly released documents highlight the urgency last fall at the Treasury Department for the CEOs of nine major banks to accept billions of taxpayer dollars as the government worked to rescue the nation’s banking system.

The documents, which were obtained by the conservative legal watchdog group Judicial Watch through the Freedom of Information Act (FOIA), were released Wednesday.

They seem to indicate the banks were given no choice but to take the money.

According to a document marked “CEO Talking Points” prepared for then-Treasury Secretary Henry Paulson, “if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance…” and warned, “We don’t believe it’s tenable to opt out because doing so would leave you vulnerable and exposed.”

Read more: http://cnnwire.blogs.cnn.com/2009/05/13/documents-detail-pressure-from-treasury-for-banks-to-accept-bailout/

They had two reasons for insisting all banks accept the money.

There was a concern that if the money went only to those banks that needed it there would be a run on those who took the money.

Also, the original reason for the bailout was to promote lending, and all banks were expected to use the money towards that goal.

Didnt pan out that way obviously (why the Treas. didnt stop to think the banks would either horde the money, or use it to expand themselves I'll never understand.....).

and what a talking point for the other side. *gulp*

"They seem to indicate the banks were given no choice but to take the money" :wow:

The "Frontline" report on the bailout was riveting.

"Inside the Meltdown" http://www.pbs.org/wgbh/pages/frontline/meltdown/

One point reported was that all of the bank CEOs were summoned to meet with Paulson. They were handed a sheet that
detailed the bailout money they would be taking and the terms. The CEOs were to sign it.

Paulson himself said that there was a lot of shouting in the room. He said that many CEOs signed, but a few held out
and absolutely did not want to sign. They were pretty much told they had to.

I think this is incredibly odd.

Will we ever truly understand what happened?

The banks were forced to take the money and give it to non-bank counterparties, who were naked as the day they were born, if the banks went bankrupt.

...but I have no idea what you just said.

I'm just a schlep trying to meander my way through this mess...

...can you explain what you meant?

Come on...don't make me beg!

;)

The problem is the derivatives. There were/are several times the world's annual gross domestic product's worth of them out there, at least. It's hard to tell. When the real estate bubble started to pop, it brought the derivatives into play. The derivatives were essentially bets, or insurance, on the price of other securities, or real estate, in which one party agreed to pay another counter-party if the price/value of the underlying assets went down, thus a price hedge. So these counterparties then needed to be paid, when the bubble started to pop, and foreclosures started to go up, forcing prices down; and the parties needed to pay them, or in some cases I gather it was a matter of putting up more assets as a guarantee, like a margin call. None of these securities had anything like FDIC insurance to guarantee them. If the other guy could not pay when he was supposed to, went bankrupt, you were out of luck. The banks have been leveraging deposits at ratios of 30-to-1 or more in late years, so they had insufficient cash to meet the demands of their counterparties, so the banks were immediately bankrupt and the counterparties out of luck. To make it really neat, lots of financial organizations were both parties and counterparties, so it could tricky to figure out exactly how much was owed or who it was owed to.

So the purpose of the TARP money was to prop this system up, figuratively, by feeding enough cash through the system so that all of these financial insitutions could pretend they were not bankrupt, to meet the extra capital requirements or pay the specified price compensation. Nobody has the foggiest idea how to actually unwind the mess without destroying lots of financial institutions that were "too big to fail", not to mention the political fallout of that. So the TARP money was fed to certain banks, who immediately fed it to their counterparties, who did likewise, and so on. It all gets very murky here. And the idea seems to be that these "toxic assets" are now somehow sequestered away from everything where they will slowly become irrevant and business will continue as usual, but with less financial exuberance. It's sort of like sweeping things under the carpet and hoping nothing else makes a mess.

Great work.

---

Instead of seeking a solution to the banks' problems, an effort that has led to nothing but tears and frustration, the government is going to pin the solution on hopes that the banks will soon be "growing" out of the problem. To that end, the Geithner Treasury people are taking off their dark-blue, policy-wonk business suits and putting on cheerleader costumes and pom poms, rah-rahing the financial sector along to victory after victory that will, they hope, soon make the travails of the past two years a distant memory.

Never will be heard a discouraging word from the Treasury regarding the banking system ever again, and it is hoped that, if the private sector can keep its lips buttoned up as well, that will be enough to muddle through until real economic growth resumes. And what of the toxic mortgage loans in the vaults of the "zombie" banks, the very problem that for two years we've been told must be addressed before the financial system can return to normal function? Well, we're just not going to talk about them anymore. According to guest blogger "Gonzalo Lira" ("hey, is that your real name?") on the Naked Capitalism blog:


http://www.atimes.com/atimes/Global_Economy/KE14Dj02.html

Source: AP

By SARA LEPRO
The Associated Press
Thursday, May 14, 2009; 9:06 AM

NEW YORK -- The chief executives of the country's nine largest banks had no choice but to accept capital infusions from the Treasury Department in October, government documents released Wednesday have confirmed.

Obtained and released by Judicial Watch, a nonpartisan educational foundation, the documents revealed "talking points" used by former Treasury Secretary Henry Paulson during the October 13 meeting between federal officials and the executives that stressed the investments would be required "in any circumstance," whether the banks found them appealing or not.

Paulson also told the bankers it would not be prudent to opt out of the program because doing so "would leave you vulnerable and exposed."

It's no secret that some of the banks had to be pressured to participate in the program, with several bank CEOs saying they had been strongly encouraged to take the funds. But the documents are the first proof of the government's insistence.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051401425.html

Can someone tell me what this means?

Wells avoided a lot of the bad paper out there and wanted nothing to do with TARP. Paulson made him an offer he could not refuse.

Oops... They forgot that 'a conservative' in there...

Nice to see the RW/Think Tank echo chamber is still operating.

http://www.judicialwatch.org/about.shtml

Non-partisan, my foot!! :scared:

No one was forced. Can we get rid of that phrase please.

What Paulson did was simple. He told the banks that they would go down the Lehman route if they walked out of the room with signing the documents. However, if they did sign the documents Paulson provided, the US govt will step in to help them with equity as and when they required.

I don't think that was "force". I think it was commonsense that got these 9 banks to sign on the papers to de-risk themselves from possible bankruptcy.

forced, my foot!