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Wall street may reject the bailout
Old 10-05-2008, 09:04 AM   #1
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Wall street may reject the bailout

Now Wall Street may shun $700bn bail-out | Business | The Observer

Word has it that many wall street companies dont like the rules and regulations of the bailout bill, and in particular the ceo's arent excited with not getting their bag of money on the way out, so many may tough it out and not take the bailout bill.
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Old 10-05-2008, 09:11 AM   #2
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Interesting. Is it possible that the offer of bailout funds, accepted or not, will restore confidence?
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Old 10-05-2008, 09:17 AM   #3
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This may make me appear naive and stupid, but if not taking the bailout clearly hurts the company (how could passing up having bad assets purchased at above market value not) wouldn't passing it up be a violation of fiduciary duty?

I guess some of the other negatives of the bill to the company, and I don't know what they are, may cloud that issue just enough...
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Old 10-05-2008, 09:20 AM   #4
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wouldn't passing it up be a violation of fiduciary duty?
Seems to me that by putting their companies in the position they're in already did that. Hmmm?
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Old 10-05-2008, 09:22 AM   #5
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Analysts also believe that the mere presence of the government as buyer of last resort will be enough to get credit markets moving again, and that a large number of banks would not need to take part for the legislation to succeed.
You can refuse to loan money to someone for two reasons:
(1) you don't have any money to loan. For example, you've reached your reserved capital limit, or
(2) you believe that the borrower represents an unacceptable risk

It's not clear how the mere presence of the bailout opportunity helps #1 or #2. If a financial institution doesn't enroll and is loaded with bad loans, then it may not be able to originate loans due to its reserve requirements. Such an institution may be viewed by other institutions as an unacceptable risk, so it couldn't get loans, either. It looks to me like actual enrollment rather than just the opportunity to enroll is required. It would be interesting to hear counter-arguments, however.
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Old 10-05-2008, 09:28 AM   #6
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The bailout may improve the perceived value of the holdings of the companies who have no cash flow. A buyer might be willing to purchase a security on monday that they would have held their nose over on friday. After all, the government will always pay $xx for it under the bailout bill.

Once they can move assets at a somewhat decent price, they can create cash flow.

But none of this immediately helps the municipalities being affected by the credit squeeze. Maybe they can put that $700b towards those
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Old 10-05-2008, 09:49 AM   #7
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Seems to me that by putting their companies in the position they're in already did that. Hmmm?
In some cases probably yes, but since I don't think anyone planned for the companies they were running to get into this situation, it would be pretty easy to argue it was a reasonable business decision/risk.

It seems to me, and I guess I'm probably wrong, that depending on the negatives to the company other than limiting executive pay/incentives, that rejecting the buyout could create a pretty clear line (as far as these things go) of acting for the benefit the execs over the company...
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Old 10-05-2008, 09:55 AM   #8
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Eh, they'll just say that they think their assets are worth more than what the government is willing to pay, and that if they hang tough for a couple of months that the value will be restored and markets will start to flow again.

Way too much wiggle room.

Now the good question is: what direction will the markets take tomorrow if this happens?
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Old 10-05-2008, 11:05 AM   #9
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Eh, they'll just say that they think their assets are worth more than what the government is willing to pay, and that if they hang tough for a couple of months that the value will be restored and markets will start to flow again.

Now the good question is: what direction will the markets take tomorrow if this happens?
When I first read the title of your thread, I cringed. But reading the below, I take it in a positive manner. Of course I'm always wrong, so look for a big sell off.

"Sources close to Goldman Sachs and Merrill Lynch indicated the banks might choose not to participate in the bail-out as there is a growing view on Wall Street that the market may be bottoming out. Analysts also believe that the mere presence of the government as buyer of last resort will be enough to get credit markets moving again, and that a large number of banks would not need to take part for the legislation to succeed."
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Old 10-05-2008, 11:10 AM   #10
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Translation: "We (the company management) wanted to take the next year or two off and live well on our $40M separation packages, but if we take the federal bailout we'll probably have to go get another job and wont get a bunch of money for screwing up the company. So we think we'll take our chances and skip the bailout. After all, theres no downside. Worst thing that happens is the company goes down the tubes, we'll be unemployed, but we get to take the golden parachute without federal intervention!"
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Old 10-05-2008, 11:52 AM   #11
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Translation: "We (the company management) wanted to take the next year or two off and live well on our $40M separation packages, but if we take the federal bailout we'll probably have to go get another job and wont get a bunch of money for screwing up the company. So we think we'll take our chances and skip the bailout. After all, theres no downside. Worst thing that happens is the company goes down the tubes, we'll be unemployed, but we get to take the golden parachute without federal intervention!"
All that consumers (and retail investors) want to hear is "We're from the government, we're here to help."

Meanwhile the CEOs will be drafting statements like "Sure, we could have wiped out your equity by giving up and letting the government take control of our future, but by declaring bankruptcy instead we wiped out your equity and gave me an executive retention bonus!!"

Meanwhile the execs who really need the bailout's benefits are probably struggling to look up "fiduciary" in a dictionary.

I think that in a few years this week will be regarded as the capitulation bottom. IIRC the last bear crash-landed around 9 Oct 2002.
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Old 10-05-2008, 11:58 AM   #12
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All that consumers (and retail investors) want to hear is "We're from the government, we're here to help."

Meanwhile the CEOs will be drafting statements like "Sure, we could have wiped out your equity by giving up and letting the government take control of our future, but by declaring bankruptcy instead we wiped out your equity and gave me an executive retention bonus!!"

Meanwhile the execs who really need the bailout's benefits are probably struggling to look up "fiduciary" in a dictionary.

I think that in a few years this week will be regarded as the capitulation bottom. IIRC the last bear crash-landed around 9 Oct 2002.
I feel like I have been decapitated. Is that the same thing?
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Old 10-05-2008, 12:47 PM   #13
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I can see some companies not taking the deal because of management greed and not making the interest of shareholders the top priority.

It could turn out that certain large shareholders (institutions) demand the company take it.

I suspect that the only takers will be companies that are near being taken over by the feds.

I have no doubt that some organizations will find loopholes around the compensation issue. For example maybe the compensation limit will be applicable to a a company that is a subsidiary of a larger company... and the limitation only applies to that subsidiary. Meanwhile they will have the executive head up two subs and get arounf the pay limitation that way... or find a board to two they can sit on and get compensation.
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Old 10-05-2008, 12:58 PM   #14
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Now the good question is: what direction will the markets take tomorrow if this happens?
Nothing is actually going to happen on bailout implementation for months. So, we won't know the rules and we won't know who participates or not.

Nevertheless, I have a strong suspicion that just the expectation that a dumb money buyer with $700B to spend is about to enter the market will be positive for asset prices.
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Old 10-05-2008, 01:16 PM   #15
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well, if they don't want it, send it our way! there's enough smart folks here to do the right thing for the market's recent craziness.
please keep us posted on this if you see more articles. thanks!
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Old 10-05-2008, 02:12 PM   #16
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Starting tomorrow all that "toxic" written down "junk" is all going to be "written up" as apposed to being "written down" so it can be "redeemed" by the Government at a profit. Or what they have not written down yet can be sold to the Government at "book value". In either case the institution gets a profit, improves the reserves, and is off to the races lending money again.

Other situation is they sell the "junk" at a loss and can use the "current" loss or "carry back" loss to wipe out any operating taxes due for this year and several back years, at great reduction in revenues to the Treasury. Don't know what this amount is but I suspect it increases the "cost" of the $700B program a lot.

In either case THERE WILL NEVER BE A BENEFIT OR RECOVERY for the "taxpayers".

How CEO's can "preserve their parachutes": They just create a new holding company, move the "toxic" stuff to this holding company (to deal with the Government) complete with its own CEO, who will be subject to the "new rules" but they themselves would not be.

Remember every good sized banking institution in this country and the world has a smart "legal" staff.
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Old 10-05-2008, 03:28 PM   #17
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European Nations scramble to stop bank failures.

Europe: Scramble on to rescue big banks - CNN.com
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Old 10-05-2008, 03:54 PM   #18
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Old 10-05-2008, 04:54 PM   #19
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I think that in a few years this week will be regarded as the capitulation bottom. IIRC the last bear crash-landed around 9 Oct 2002.
We've capitulated several times in the last month. Which one is "the one?" Maybe it will be tomorrow.
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OAG You nailed it
Old 10-05-2008, 05:56 PM   #20
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OAG You nailed it

Also, the Secretary must invest > 300M in the "institution" to be subject to the CEO golden parachute limits, so to take your idea one step further, the company can subdivide the bad assets into smaller holding companies that all fall below this limit, so even the CEOs of the Newcos will be able to have their golden cake and eat it.
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