US taxpayers hit as TARP takes a new turn

[ChromeFoundry]

Source: Reuters

4 Mar 2010, 1242 hrs IST, REUTERS

NEW YORK/WASHINGTON: A small Midwestern bank has negotiated with the U.S. Treasury for taxpayers to essentially buy the bank's shares at an above-market-value price, in an unusual transaction reflecting how the government's bank investments are entering a new phase.

Midwest Banc Holdings Inc agreed to swap $84.8 million of preferred shares it sold to the U.S. government in 2008 for securities that will convert into about $15.5 million of common shares -- roughly an 80 percent loss to taxpayers.

To some analysts, the transaction is an outrageous giveaway to an ailing bank, and its investors.

"There's a lot of funny stuff going on here," said James Ellman, president at hedge fund Seacliff Capital in San Francisco.


Read more: http://economictimes.indiatimes.com/news/international-business/US-taxpayers-hit-as-TARP-takes-a-new-turn/articleshow/5640228.cms

[Juneboarder]

1. United Corporations of America...

Welcome my friend. Have money? We're here to steal it from you. Not in an indiscreet way... just straight up take it out of your hands. HA!!!

:evilgrin: :evilgrin:

:sarcasm:

[naaman fletcher]

2. Pure thievery..

Remember, there is only one political party. The GOP and DEMS pretend to fight over stuff, while they are 100% lockstop in raping the taxpayers on behalf of the banks.

[Psephos]

7. You got that right, for sure. n/t

[icee]

12. And, I presume, you know who is leading the thievery?

[ooglymoogly]

17. J.P.Morgan-Chase, Goldman Sachs.

Dig deep enough and their greedy finger prints will be all over it.

[icee]

21. Time for, well, never mind...get into trouble.......

[wordpix]

28. maybe they are hoping to buyout the little banks that can't pay back the loans and then...

they'll divide the purchase into little pieces to sell throughout the world so their fingerprints will be hard to find, and they'll make a huge profit while taxpayers are left holding the bag of bills.

This way, they make out twice---once with TARP funds and once with a financial instrument that's tried and true and made them billionaires previously.

[wordpix]

27. hmm, article says it's little banks that can't pay back TARP loans BUT could the big banks be

hoping to swallow the little banks in this deal? :shrug:

[KansDem]

3. I'm no economist, but aren't we suppose to "buy low" and "sell high?"

Isn't that the basis for capitalism?

This looks like we're "buying high"...:shrug:

[OhioChick]

6. That's what I thought...

:shrug:

[galileoreloaded]

13. Actuall, this was NEVER the plan, and was articulated quite well, I thought....n/t

[Igel]

4. Let me get this right.

Now, keep in mind all the info I have about this transaction is from this article, so it's really a check on internal consistency.

1. The shares of common stock are being bought at an above market price: $84.8 million in preferred shares for 15.5 million in common shares. So the common shares are worth 18% of the preferred shares.

But:

2. It's understandable, to some, because there's not a strong bargaining position for the government. It can do that to help stabilize the small bank, or it can eat most of the $84 million. How could this be?

Ah. The answer:

3. While the value of the preferred stock is $84.4 million, the "current market value of the government's TARP preferred shares is about $8 million." In other words, the value of the preferred stock is only about 10% the value of the preferred stock. If this hadn't happened, presumably we're supposed to infer--in spite of being told to derive the opposite inference--that the value of the stock wouldn't have been $84.4 million, or $8 million, but far less.

Yes, an internal consistency check would be useful, because if the article is right and the common shares were vastly overvalued, we're also left with the conclusion that

4. The common shares obtained are worth 93% or so more than the value of the preferred shares swapped. Leaving us with the conclusion that while the government simultaneous got 18% and 193% what it should have. Now that's a neat trick.

Perhaps the solution is to recognize that what you pay for a stock isn't the "real value" of said stock. Some banks were in worse shape than others.

Now, stepping back from internal consistency: It was awarded funding on or shortly before 11/3/08: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20081103005517&newsLang=en
"Midwest Banc Holdings, Inc. (NASDAQ:MBHI) announced today that it has received preliminary approval to sell $85.5 million of preferred stock to the U.S. Treasury under its TARP Capital Purchase Program. In addition, Midwest will issue warrants to the Treasury that will allow the Treasury to acquire shares of Midwest common stock equal to $12.8 million (15% of the value of the preferred shares to be acquired). The number of shares of common stock that will be acquired upon the exercise of the warrants will be determined at the time the preferred is sold to the Treasury and will be based upon the 20 day average trailing price. The proceeds will be used to further strengthen the balance sheet of the company."

[dixiegrrrrl]

8. shorter explanation:

Treasury is buying worthless assets of the bank to cover the bank's losses, just as it did to cover losses of the Big 5 banks AND European banks AND got knows what else.

Treasury will add the worthless shares to the huge steaming mountain of worthless shares of other banks it has bought, the bank's books will STILL look "fine" until the soon to come day when the whole pile of crap comes falling down.

THAT you can take to the bank.

[Lagomorph]

22. I don't think a lot of people...

...understand just how tight things will get. People tend to gloss over the bad news until the collection agency comes calling. A lot of economic activities are simply going to stop happening, especially government assistance. Just like those people who bought four $500,000 houses (now worth $400,000 IF they can sell it) with $60,000 income, we're way upside down.

China has reminded us that the rest of the world needs credit too and our economy is declining on the long curve, rather than growing.

[izzybeans]

9. Sounds like a scramble to get back as much value as Bush lost giving TARP

funds away willy-nilly, given the way you broke that down.

But I'll insert the knee jerk "blame Obama" phrase just for bona fides.

[Cass]

5. Well, shoot, if they were willing to do that they could have bought the homes going to foreclosure

and reset the mortgages. At least the giveaway would have been to taxpayers directly and it could have averted financial doom for so many people.

[liberation]

10. Yeah, but how are them bankers gonna make money if they can't charge interests

on those loans?

I love how even when they have zero actual assets, and the money being lent is not theirs... them banks still feel entitled to charge interest for the "privilege" of moving money around. We are literally giving our money to the bankers for the privilege of having them loaning it back to us... at interest.

Seriously, people still don't get this whole setup is nothing but a big long running rip off. LOL.

[Raineyb]

14. And it probably would have been cheaper too. n/t

[conscious evolution]

11. I wonder who owns this bank

Does anyone ever check up on ownership of failed banks?

[tavalon]

23. We do, We The People

But it's the bankers who are making out like bandits. Wait, they are bandits.

[change_notfinetuning]

15. Whatever the story is, relax. It's all 3D-Chess. And you win, sucker. n/t

[MsLeopard]

16. Yes we can!

But we won't - suckers!

[CanonRay]

18. Over $69 million just given to a private company

Nice. Boy, are we getting ripped. Anybody still think the government is working for us?

[JerseygirlCT]

19. Someone was suggesting this the other day -

you take a bailout, the top execs go.

If the taxpayers are going to take a bath, then the leadership of the company should be forced out - no golden parachutes, no bonuses. Screw up, and go.

[subterranean]

20. Ah, hell, it's only a loss of $69 million.

That's small change compared to the size of the total bailout.

It's not even enough to pay for one day of the Iraq occupation.

[Lagomorph]

24. Understatement of the millineum...

"There's a lot of funny stuff going on here,"

[No Elephants]

25. Americans will never take action. Don't worry. Be happy.

[wordpix]

26. is there no end to the TARP bailouts? Let's get Eliz. Warren back on the Hill

to tell it like it is. GEESH :puke:

[classysassy]

29. Capitalism

is the vehicle used by the bankers to get into your pockets and escape with your money,its organized crime by banks and their enablers.

[Amonester]

30. Me thinks it would be interresting to know who their enablers are.

And WHY they enable the banksters over and over.

Interesting, it would be, n'est-ce-pas.