Welcome to the Fed California where you can check out but never leave. Please consider Treasury Seeks to Keep U.S. Bank Stakes After Buyback.
The Treasury intends to retain an ownership interest in many U.S. banks even after the lenders buy back preferred stock the government currently holds as part of its rescue effort.
The government will continue to hold warrants, attached to every capital injection it has made, even after any share buybacks, Treasury officials said on condition of anonymity. Banks seeking to escape the government’s grip want to retire the warrants — which give the right to buy stock in the future at a preset price — at the same time they acquire the government- owned preferred shares.
The officials said the U.S. would give up the warrants only after subsequent talks with appraisers and the banks to agree on a price. As long as the warrants remain, lenders would continue to face some federal constraints, including limits on hiring non-American citizens, the officials said.
“If you look at the cost of those warrants and turn it into an annual percentage rate, it’s enormous,” said Camden Fine, president of the Independent Community Bankers of America. “It almost makes the Treasury look like a payday lender.”
JPMorgan Chief Executive Officer Jamie Dimon said April 16 his firm could repay U.S. government rescue funds “tomorrow.” He called the receipt of the $25 billion in TARP money last year “a scarlet letter.
To repay, a bank must apply to the Treasury. The request then goes to the bank’s regulators, who review the soundness of the institution. If the bank is deemed in good shape, it’s allowed to buy out the government stake.
Some smaller banks are already in the process of repaying their TARP funds. Of the six who have repaid so far, five have outstanding warrants that need to be addressed.
While on the subject of California, here is more California news.
California Asks Feds To Back Its IOUs
Every day that goes by, figure California goes deeper in the hole. Now California Asks Feds To Back Its IOUs.
Facing what could be the largest cash flow problem in state history, California officials are asking the federal government to back billions of dollars in short-term loans the state must seek in July.
“We’re going to need cash-flow borrowing the likes of which California has never seen, at a time when market and economic forces are stacked against us,” said Tom Dresslar, spokesman for state Treasurer Bill Lockyer. “That’s a recipe for calamity.”
Lockyer and other state and local officials have been quietly exploring the idea of doing what hordes of private financial and insurance enterprises have done in the past year: Ask Uncle Sam for help.
Precisely what kind of help it would be hasn’t been decided. A spokesman for the House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., confirmed that Lockyer had met with Frank in late March, and that Frank was in the process of drafting legislation designed to aid states and local governments with problems similar to California’s.
“There is something in the works,” said spokesman Steve Adamske, “and that should be drafted by the end of this month … there are several ideas being considered.”
One idea is that buyers of RANs issued by states and local governments would be able to resell them to the federal government. The funds would come from the Troubled Assets Relief Program, or TARP, the $700 billion program that buys assets and equity stakes from financial institutions.
Another possibility is the federal government would provide RAN “enhancements,” or guarantees that if the state or municipality defaults on the notes, the feds would pick up the tab. The state and local governments would pay the federal government a fee for providing the guarantees.
TARP Magic Hat
That Troubled Asset Relief Program is really something. At the core of TARP is a magic hat. Inquiring minds are asking “How many $trillions have been promised out of a $700 billion hat?” Unfortunately, only the hat knows for sure and it isn’t saying a peep.
California Unemployment Hits 11.2%
In still more California news, the unemployment rate in California soars to 11.2% according to the BLS Regional and State Employment and Unemployment Summary.
List Of Highest Unemployment Rates
Michigan …………………… 12.6
Oregon ……………………… 12.1
South Carolina ……………. 11.4
California …………………… 11.2
North Carolina ……………. 10.8
Rhode Island ………………. 10.5
Nevada ………………………. 10.4
Indiana ……………………… 10.0
Sing Along To Hotel California
Mirrors on the ceiling,
The pink champagne on ice
And she said ’we are all just prisoners here, of our own device’
And in the master’s chambers,
They gathered for the feast
The stab it with their steely knives,
But they just can’t kill the beast
Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
’relax,’ said the night man,
We are programmed to receive.
You can checkout any time you like,
But you can never leave!
One of the many interpretations about Hotel California is the lyrics are about an insane asylum. Indeed that is a fitting description indeed for what the Fed and Treasury and the banks are doing.
Now banks are prisoners, of their own device.
Mike “Mish” Shedlock
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