On Apr 22, 2008, at 10:58 PM, Seth Ackerman wrote:
> Why can't the banks be forced to recapitalized? It seems like they're
> dragging their feet about it, hoping a bailout will come along and
> save
> them. (Yes, some banks are recapitalizing, but then they're the
> ones who
> don't need a bailout.) If the alternatives were issue more shares
> or go
> under and be nationalized, more banks would issue shares, it seems to
> me. But if everyone is bending over backwards to offer them a bailout
> then they'll just take a bailout.
Banks have raised a lot of capital and they're trying to raise a lot more. There's been an infusion of funds from private equity and sovereign wealth funds. I'm guessing that some of the PE deals came with some kind of "we didn't have this conversation" guarantee from the Fed. The lesson of earlier banking crises, though, is that it takes public funds to do it right, because only the public sector can come up with the necessary sums. Maybe the PE/SWF plus secret guarantee formula is a substitute.
By the way, despite the complaints, the Fed's Bear Stearns maneuver seems to have been fairly successful. There are still problems in the markets, but they've calmed considerably over the last month or so. That doesn't mean we're avoiding recession - we're not - but it does mean that the risk of total implosion has receded.
Doug