Tuesday, April 28, 2009

BofA is in trouble because it was doing Treasury a favor. How do you fairly deal with a situation like that?


The Curious Capitalist - TIME.com

Stress tests: Sympathy for Ken Lewis

I'm sitting in a one-tenth full meeting room at the Beverly Hilton for a 6:30 a.m. panel discussion on Private Versus Publicly Held Financial Institutions: Which Are Best Positioned? More than 300 people had signed up, but maybe the just added session on the swine flu siphoned people away. Or maybe the swine flu siphoned people away.

Anyway, because I'm rude, I'm also sitting here reading the latest about the stress tests: Citi and BofA are apparently being told that they'll need to raise more capital. Which means that Treasury will probably end up putting up that capital and taking a bigger ownership stake at both companies, thus pushing aside existing shareholders and, possibly, management. This is no big surprise, so the reports that the leadership at both banks are objecting to the government's verdict is a little bit weird. At least, it's weird at Citigroup, which got itself into this mess and really has no business questioning what the Treasury Department says at this point. In the case of BofA, though, I actually am capable of ginning up some sympathy for Ken Lewis.

I'm going on the assumption that BofA needs capital largely because of problems at Merrill Lynch. And it has become pretty clear in recent days that BofA wouldn't have gone through with its acquisition of Merrill late last year unless it had been strong-armed into it by then-Treasury Secretary Hank Paulson. BofA is in trouble because it was doing Treasury a favor. How do you fairly deal with a situation like that?"


  1. donthelibertariandemocrat Says:

    I can't agree with anything being argued here. I'm glad that the B of A bailed out Merrill at the behest of the govt. I'm glad that the govt did that. I wish that the B of A could have saved Lehman. At that point in time, the only modus we had for saving large failing financial concerns was to merge them with other large financial concerns at the govt's expense. The only other option was loans actually by the govt. In other words, real govt money vs possible govt money. The UK had the exact same problem.

    Shareholders of the B of A and Lloyds have a right to be angry. They're being penalized for doing something beneficial for the country. The B of A might well have owed the govt something. But that argument cuts both ways.

    Finally, I do agree that the taxpayer's money comes first. That means that it should only be spent wisely and efficiently. But that's up to the govt, not the B of A.

    I completely understand having to shaft some people to protect the taxpayer's interest if we have to. But I don't see the point of lacking sympathy or understanding for people who get screwed in the process. I would hope that we were better than that.

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