[lbo-talk] my bailout plan

Michael Pollak mpollak at panix.com
Sat Sep 27 11:12:30 PDT 2008


On Fri, 26 Sep 2008, SA wrote:


> The banks need to be recapitalized. But the Paulson plan is an
> outrageous giveaway. Here's a better plan. Lets say the banks need $700
> billion - that's 30% of the total market cap of the financial sector.
> But nobody wants to invest and the banks don't want to be invested in.
> So in my plan, the government forces the banks to sell stock to the
> taxpayer using a mechanism similar to a cap-and-trade system:

I have questions, mainly technical -- I'm not at all sure what you're suggesting here, probably because it's so mercifully brief


> 1. Each financial company is required to sell the government an amount
> of stock equal to 60% of its market cap as of some past date.

Okay, let's say the market cap of Citi is $100bn. The company can't sell the government $60bn worth, because it doesn't own it (KIA does, among others.) Do you mean it should issue a new $60bn? Is this ordinary stock or preferred stock?

And what are you thinking about when you say "some past date." You mean before the troubles, when banks might be worth 3 or 4 times what they are now?


> 2. However, the government also distributes to each financial company
> "waivers" equal to 30% of its market cap as of that date.

I'm not sure how you're using the word waiver. Normally a stock waiver is something I use to sign my stock over to you. What do these waivers do, what do they claim, what does their price refer to or measure?


> 3. A market for waivers is established. Companies with extra cash buy
> wavers from cash-strapped companies.

Why would they do this as opposed to buying some other security? A speculative investment is what they need right now? Is there a requirement somewhere as in cap and trade?


> 4. The outcome of trading shows which companies need the extra capital
> and which don't.

So as it should be clear, I don't understand how this works. It's sure wonky and original, though.

Michael



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