Monday, October 20, 2008

Am I missing something? Paulson hasn’t injected the funds yet?

Am I missing something? I assumed that when the deficiency between global capital losses and capital raised went from
and stayed at
because the Treasury’s capital injection had already made it’s way to bank balance sheets – at least I thought that the $125 billion quasi-temporary injection to the nine banks announced on October 14 had.

But now, Paulson implies otherwise in a statement on October 20 (today):
"Good morning. As you know, over the last few weeks we have worked aggressively to implement the authorities provided by Congress in the financial rescue package enacted earlier this month. This morning, I will provide a short update on the capital purchase program that is a key component of that package.

As we have designed the program, Treasury will make $250 billion in capital available to U.S. financial institutions in the form of preferred stock. Institutions that sell shares to the government will accept restrictions on executive compensation, including a clawback provision and a ban on golden parachutes during the period that Treasury holds equity issued through this program. This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything. They will not only own shares that should be paid back with a reasonable return, but also will receive warrants for common shares in participating institutions. We expect all participating banks to continue to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure. Foreclosures not only hurt the families who lose their homes, they hurt neighborhoods, communities and our economy as a whole."
RW: Now I am no math whiz, but if the capital hasn’t already been injected, then World capital markets are making up the difference themselves – reducing the 9/22 $152 billion balance sheet deficiency to just $28.8 billion on 10/20. To some (like me), $250 billion may seem like overkill, never-mind the whole kit 'n kaboodle, $700 billion.

Something must be amiss. Perhaps the Treasury Secretary meant to say that the Treasury will complete the $250 billion injection, but already had made a $125 billion injection – I certainly hope so.

Rebecca Wilder

1 comment:

  1. Aren't they still getting the Treasury offerings ready? No $$$ yet. And, that has been and will be the big problem with the whole US response. Now they want to do another stimulus package!! Yeow!!!