Taxpayers recapitalise banks

Render unto Paulson that which is Paulson's.

Congress are NEVER going to wear this, are they? This looks like a welfare package not just for banks but for bankers.

I do not understand why the debts cannot simply be bought at market value or, at any rate, at some meaningful discount to book.

I know they think that tax-payers are the most docile sheep around. But even sheep must have their limits.
This is tantamount to rape!

.... and all without any provision for oversight! They'll be cheering in the boardrooms and banqueting halls tonight!

This is so haphazard it is terrifying.
They want to throw more and more money at the whole corrupt system hoping something will work
I think we should be circling the wagons here to protect our retail banking system.
We will certainly need the facilities in the future for our businesses to continue and the rest of us to function.
As for the rest of the global economy. Well! Throw it all up in the air and see what comes down. Any better ideas?

Hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha....etc

In the face of delihberate and by-design madness, no other coment seems worthy.

Still it better than UK and Europe. We haven't done any thing.

Also "Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders" we are still doing anything.

Only reason I support this bailout is because I believe we have to sort this mess out. Also I believe we have to punish the once (management) that messed this out.

Robert - you are spot on as usual. We must keep up the pressure here. We must not do this in the UK.

If the UK government enters the market with taxpayers money it must act as any other commercial player would.

I liked the idea of underwriting the distressed assets, but judging by the current market reaction these assets will have to actually be sucked out of the banks. But these assets should be purchased in the market.

The banks will also have to be recapitalised, but as you imply this is a separate issue. The necessary rights issues should be underwritten by the goverment and where investors do not buy - the government should get the commercial price for its stake.

Robert is missing/distorting the point almost entirely here. There is no market value as there is no market. That is precisely the problem.

What Mr. Bernanke said, according to the Wall Street Journal, was;

"Uncertainty in housing markets and the economy are forcing financial institutions to mark mortgage securities at fire-sale prices, rather than their value if held to maturity, effectively creating a vicious circle of more write-downs that further depress asset values, Mr. Bernanke explained.

Mr. Bernanke said the Treasury plan should have taxpayers buy the assets and hold them at close to their maturity value. Removing the assets, he said, would bring liquidity back to markets, unfreeze credit markets, reduce uncertainty and allow banks to attract private capital."

There is nothing here that says maturity value is face value.

The banks will not be booking profits at taxpayers' expense, they will just be reversing provisions that may well prove unnecessary because of the absurdity of market to a non-existent market price.

Every bit of financial small print I have ever seen includes the words 'markets may go up as well as down'. If the rest of us have to accept this, why are we letting the policitians and bankers use taxpayers money to try and exempt themselves from this small but ultimately significant little truth?

We used to have 4 classes, Mr Peston.
Upper class, Middle class, Working class and Underclass (the poor).
We now have a 5th class......Banking class.
Banking class is above the law, cannot lose, and pay themselves whatever they like.
They are at the top...higher even than Upper class.
The untouchables.

So the American banks will be able to report big profits again in 2008 reversing their write offs. So that's big bonuses for their Directors then and a big increase in the value of their stock options care of the American tax payer.

According to page 8 of yesterday's Times: 'Mr Paulson added that Washington was applying pressure on other governments to take similar actions: "We have a global financial system and we are talking very aggressively with other countries around the world, and encouraging them to do similar things and I believe a number of them will".'

So will Gordon allow himself to be seen to give in to the demands of the Americans and the bankers?

This is absolutely unreal; unbridled capitalism breaks down irrevocably and turns the communal purse to attempt to bail it out, and at such such inflated figures too!

Is anybody going to be held accountable for the loss that so many ordinary people have already felt or is the profit that some leaders have already trousered simply going to be spent on legal defence so that only the lawyers will profit from this all?

. . . and without lube.

Why should we get the shaft and they get the goldmine?

Chris Dodd, Democratic chairman of the Senate Banking Committee, said the "economic maelstrom" was caused by a combination of "private greed and public regulatory neglect". How succinct!

On the other side, Secretary Paulson built up a personal fortune of $700m whilst at Goldman Sachs. He is self evidently a man of shameless greed. How can Dodd bear to sit in committee with him? I do not think that I could contain myself.

Had AIG et al not been bailed out then all the banks, including Goldman Sachs, would now be collapsing.

The profits that Paulson was so handsomely rewarded for making were nothing more than false accounting and are now wiped away by titanic losses.

If he ends up keeping his enormous fortune it will have to be paid for by millions of indebted taxpayers, working at proper jobs, for years to come.

Why should he be so rewarded?

Why shouldn't he and others like him be compelled to return their vast wealth to the public purse to pay for the bail out? Their pay cheques were a 'drawdown' on conceptual profits, profits that have not materialised - quite the reverse.

For all the bankers that have been paid scandalous amounts the authorities should identify, seize and sell their assets. If not, we have to accept that we who are not bankers are a lesser breed than them. They are the 'master of the universe' and we are the 'little people' - the 'little people' that have to pay the taxes - and I am not happy about that - I am very angry.

Society has a duty to be fair to all or it is not a society. I feel that my government has badly let me down and for that I spurn them. The 'little people' will punish the politicians at the polls for sure - but I also think the government is courting mass civil disobedience.

If the perpetrators of this scandal are not publicly humbled then the consensus of society need not apply to any of us. With no consensus the 'little people' may decline to be governed - and then all bets are off.

So will this mean Mortgages become available in the UK once again ?

When will the Ratings Agencies be disciplined for not spotting the problems with these financial instruments ?

Will fraud charges be levied against the Mortgage Brokers in America who set this ball rolling?

Will Shareholders get the right to vote on Executive pay in the Banking Sector ?


So many questions !

Simply shocked if this is true.

Do the stars and stripes no longer stand for the individual states but the rag-bag of assorted Wall street firms and names?

Speechless!

Surely this is just a negotiating tactic. Paulson has asked for 150% and expects to get beaten down.

If this passes I will get a job in the black economy.

There are a huge number of negative news reports about the chance of the Poulson Plan getting approval.

The plan may be the "mother of all bail-outs", but it is not showing much promise in Congress. Looks like the Senate Banking Committee is giving Poulson and Bernanke a torrid time - it looks bad if not terminal for the plan.

What is plan B?

Initially I thought catty remarks about Paulson hitting the panic button only after Goldman Sachs was in trouble to be a bit harsh.

I'm not so sure now. Paying close to face value for the "junk bonds" circa 2008 is pure folly.

Perhaps the fact that Paulson will be back to fishin' n' shootin' come next February might be part of the answer: just keep the lid on Pandora's box until Paulson is the ex-Treasury Secretary

To repeat the comment...

There is surely a case for a 'windfall' tax on 'Bankers' (not Banks) and ex-bankers. This could help pay the Government bailouts.

Maybe Hector Sants and Hank Paulson, (who have banked huge bonuses whilst they were bankers creating this monumental mess), could suggest this to their respective Governments? Tax is supposed to be progressive and not regressive.

I am in complete disbelief.

What depresses me most is that the American public will allow their leaders to take more of the public's money and hand it to those who already have too much. I'm in turns sickened, depressed and angered.

18:

I hope you're right. Otherwise it makes no sense. It's almost as if Paulson wants to scupper his own plan (which seems pointless). So I hope that he is indeed aiming to get half a loaf by asking for a whole one.

And what happened to the 'reverse auction' idea?

Robert - I think the difficulty here is timing. These distressed assets need to be sucked out of the system to restore confidence and at a knock down price to protect the taxpayer. But the banks also need to be recapitalised ideally at the same time and again as part of a good deal for the taxpayer.

Greater problems will come if the banks won't sell the assets, the markets then force them to and the banks go bust before the government can recapitalise them.

Perhaps trading in the shares of any banks involved in these negotiations should be suspended until a price for these distressed assets has been agreed between the two parties and a recapitalisation process has been set in motion.

#7 - alphaGlen wrote:

"Still it better than UK and Europe. We haven't done any thing".

No major UK or European financial istitutions have failed - yet.

Only the US could do this. If anyone else tried a bailout on this scale then their currency would sink like a stone.

Whether US taxpayers will allow themselves to be totally 'messed' in this way is another story...

Yeah, let's subsidise the bankers to take even more risks with our money next time.

Moral Hazard? More like the Dukes of Hazzard, with Paulson and Bernanke as Boss Hogg and his sidekick sherriff.

This is the biggest theft of all time.

The Banks have a pile of their own poo valued at $50

The Banks want to sell their poo to the American tax payer for $100

All so they can start pooing some more?

If this gets through, prepare for a bigger Champagne order at Morgan Paulson and Paulson Lynch than for any obscene Bonus Day party.

I have worked all my adult life (I am now 58 and self-employed) and disclosed all my income and paid tax on it. I've walked out of more than one job when I found that I was being expected to collude with financial mismanagement (such as the centrally-funded UK university department whose head was lying to the Treasury) and luckily found other employment. However, the last 10 years have seen a massive increase in NI and tax rates, dozens of broken election promises, and now this crisis which will affect how much my personal pension is worth. I, too, am going to do far more in the black economy and the cashless economy in future.

As I write this I am watching Paulson and Bernanke live at the congressional hearings.
They sound like schoolboys who's mates have been caught out.
They know that their mates are going to be bailed out.
They know there is no other option available.
They are just taking on the chin since they know that they will soon be off camera and can then have a good laugh.
They also know that their "solution" may not work.
That is precisely why they will be having such a belly laugh..

If the banking fraternity continue to have such disregard for the public, they will be vilified and hated.

If our Government allow the bankers to profit despite by their own dreadful performance they will be signing their own political deaths.

Does anyone recall the Poll tax riots? This could be far worse.

Indeed given the Lloyds TSB merger with HBOS, something Mr Brown says he tooke a direct role in. Do you not think this is of importance? Brown's wife (Only in her 40's) got a Lifetime mortgage through Lloyds TSB only last year on a flat that has caused political intrigue previously:

The Maxwell flat:
https://news.bbc.co.uk/1/hi/uk_politics/595923.stm

The Mortgage deal
https://www.telegraph.co.uk/news/uknews/1556730/Flat-deal-will-mean-tax-savings-for-Brown.html

Good Greif - is the U.S. Congress really going to buy this one?

Probably the loans won't pay anything and the US government will become the biggest housing association in the world

"I find it difficult to believe that Congress will give its assent, unless there ... could be stakes for taxpayers in the banks, or the wholesale sackings of bank executives"

Sacking's to good for 'em. Hold them to a reading of (the existing)Bank regulation in the United States and you will be compelled to fire them, along with forfeit their remuneration/bonuses, and impose penalties and/or prison sentences, vis. Enron.

Not OR but AND stakes for the taxpayers (Yes please) on condition of "hold-to-maturity" minimum value.

Comment 15 : drew_lg

"Why shouldn't [Paulson] and others like him be compelled to return their vast wealth to the public purse to pay for the bail out? Their pay cheques were a 'drawdown' on conceptual profits, profits that have not materialised - quite the reverse."

This is a point I've been trying to make over the last few months, but to very little effect. The popular understanding is that banks etc. made huge profits for a few years, and are now making huge losses. And the sentiment is that those who made huge bonuses in the years of profit, should now repay some of these bonuses because their employers are now making losses.

This is not really a very accurate way of looking at it. The reason why banks are making huge losses now is NOT that 2008 deals have gone wrong, but that deals from earlier years were miscalculated. 2008 losses are not distinct from the profits from earlier years - they are reversals of them, corrections. They are generated from the same deals, being accounted for in different time periods.

So the argument for repayment of bonuses is not that bankers should do the decent thing and contribute towards alleviation of current losses, but that they should never have received the bonuses in the first place.

Quite a different outlook, isn't it?

I am starting to think that it was actually the talk of 'reverse-auctions' and increasing regulation of the banking sector that were the negotiating tactics - it seems like the banks will be getting the whole damned bakery.

I hope the senate holds out against this plan. So far, they are making the right noises. The bankers and politicians should be held accountable. Mr Brown is trying to deflect attention for his failure and that of the FSA to the "global" economy. He must not be allowed to.

The toxic book value is bound to be low because it is impossible to value. It is dependent on the market price of property. In the event of no intervention property becomes worthless so the book value is supressed. Take action that stablises the market and the projected value rises. Paulson has already raised the price by saying he proposes a buy, but he had no choice. He must have had a calculator out a long time ago. Still doesnt stop the US taxpayer making a profit long term on the toxic book it is just what price it is secured at. Whats the big deal. The US taxpayer has no choice, the banks have to ditch, nobody else has those sort of funds, there are bound to squeals, its just begging for it. No intervention means that property heads for unsaleable ie zero and most US taxpayers hold property. If intervention elevates property prices what would you want to see as a US houseowner. The politician will bend, they always do. They will all bitch but there has to be some sort of deal and this is the only one on the table so far. Paulson can't say that the deal may even possibly be okay or it pushes the price up. I thought that this was what a deal was all about. Its not rocket science its people harranging in the street.

Robert, there are amazing things going on and coming out.

I understand that VP Cheney and other top Bush officials are putting lawmakers under maximum pressure. However, they have a problem with real Republican conservatives/ideologues as well as intelligent Democrats (and there are some of both) - who are resisting being rubber stamps for the umpteenth time.

Apparently it is being reported that Bush himself is unavailable to talk about the plan. The White House Deputy Press Secretary Tony Fratto claimed he knew that lawmakers were concerned but said that Paulson is the 'salesman' and lawmakers should be satisfied with that). The WH Dep Press Sec also said that it would be 'unthinkable' for Congress not to agree the plan/pass legislation this week.

What is particularly interesting is that Fratto is also reported to have insisted that the plan itself was not a rush job but had been drawn up as a contingency over recent months and weeks by the administration. Fratto did not appear to think there was a problem with lawmakers having just a few days to examine it.

I've been reading Barton Gellman's Angler and this smacks of VP activities of which the POTUS is only dimly aware.

I think your judgements about the politics of this are right on the money (sorry). Paulson's reputation will not survive...but his fortune may; although it may be a close run thing.

I suppose that I should be shocked by this, but I am not. We are now entering the funny farm.

The fact that Paulson and Bernanke could get this one past Bush is no surprise, but to have the effrontery to try to get this one through Congress suggests that they are both stupid as well as incompetent. One can only hope that this plan collapses and with it any pretence that the capitalist system can survive.

We need to wake up and start planning for a new world order, one which can ensure that we can all afford to live from the cradle to the grave. There is no alternative.

In case people are not already aware, there is a worldwide petition gathering momentum. Perhaps not as strongly worded as some of us would like but, if enough people sign, at least it will show our illustrious leaders that we are not willing to take this lying down.
You can read the petition (and sign) at https://www.avaaz.org/en/global_finance_action/98.php

I find this extreamly worrying
- not because of the large funds flowing to the banks involved but that it appears to indicate the US economy is very very weak and needs such a large stimulus to avert a major downturn.

However, given the proposals are supported by the head of the FED and the Treasury secretary it seems reasonable to conclude that this really is the true position.

If so maybe its paradigm change time - major shift in financial power away from the west to China et al some 20 years quicker than previously thought.

Could well be Brown has been summoned to the US to be told to put something in place in the UK in return for UK banks in the US gaining access to the US toxic bank, far from him jetting off to lead things. Never bought the Brown line on it, too much the tail wagging the dog. US admin appear to be reacting far far faster than UK admin.

Article 8 = Poulson above and beyond the rule of Law... not even the President of the United States enjoys that privilage in Law!

'Big' Ben admits the Plan involves paying top dollar for this merdé.

The Plan itself takes no account of the black hole that is credit default swaps which the banks were trading aswell issuing aswell as being the issuee.

When a african dictator is finally rumbled, traditionally his penultimate act as él presidenté is to loot the central bank... Poulson wants Congress approval for his looting. Be clear. This Plan will not solve the problem, merely delay the meltdown a month...6 weeks tops.

I'm hearing on the grapevine that not only are Paulson and Bernanke going to be buying mortgage backed securities (MBS) at full face-value, but they will also be paying the interest on those loans as though they had matured to 30 years, giving those desparately needy bankers a little extra cream on the top of their desserts.

SCAM. SCAM. SCAM.

Oh well, if it stops the collapse of Western civilisation, I guess it's worth it. We'll all just get a lot poorer while the bankers carry on as normal.

#43 such socialism for the poor and the masses will never do. This all about keeping the rich, rich and in glorious isolation.

Robert, sometimes the naivety of your comments alarms me.

What price did you expect the bailout to be at? If at current market, it achieves nothing. The whole point is to transfer the possible future losses to the US Government, in the hope and expectation that, by doing so, the financial markets can begin to move again. And in that process, reduce the risk of those future losses actually crystallising.

Doing nothing leaves the markets logjammed, with potentially dire consequences that could dwarf the size of the proposed bailout.

I doubt anyone thinks this is a desirable situation, but if you've a better idea, now's the time to come forward with it instead of sniping from the sidelines...

Spanking bankers, however satisfying, isn't going to solve the problem.

Maybe the Treasury think that nothing is going to work.
So, they're going to keep pushing the boundaries of the proposed deal to yet more extremes, until they meet with an inevitable impasse. Then they can claim that they tried but were thwarted by Congress. So, it will be Congress's fault. Just like the whole sorry mess will soon be the next President's failure.

Re #15 Drew Lg :

The problem I have is the bankers got us in this mess and the bankers will have to get us out...

Most people feel the bankers have to be punished for their actions.

The longer the government waits to do this, the greater time for the effects of this crisis to feed through into the general ecomony.

There is no way Joe Public is going to endure the tax burden, loss of jobs etc. Once this hits, he's going to be looking for someone to blame.

The popular press will might (will?) whip up hysteria against the bankers and the government will be forced to go overboard in the punishment to placate the mob in a feeble attempt to win the next election. This will be no good for anyone.

The sooner Brown comes up with a fair plan to punish these guys and announces it the better for all of us (including the bankers themselves).

Justice needs to be done. Taxpayers forced to insure bankers fat bonuses is not justice. If the government doesn't do something about this soon then it faces having to panda to the mob further down the line and stifle the recovery.

Oh, I've just realised - you know how this will end - President Bush will invoke the "unitary executive" doctrine and use a Presidential "signing statement" to make Paulson's plan happen, citing "exigent circumstances".

All this thrashing about in the Senate is futile, for whatever new legislation results Bush will nullify and disregard the parts he doesn't like. He's done it before more than once - 2005 Detainee Treatment Act, Postal Reform bill, 2008 Department of Defense Appropriations Act, 2008 Consolidated Appropriations Act, Patriot Act - and got away with it again and again (some 750 opinions).

The New York Times said (5 May 2006) of President Bush that "none have used it so clearly to make the president the interpreter of a law's intent, instead of Congress, and the arbiter of constitutionality, instead of the courts".

I guess that the outcome all depends on what discount they rung out of the banks but a quid pro quo surely must be government equity stakes in the firms concerned - to be sold post recovery to defreay part of the cost of the bail out - and a thorough clean out of senior management, though it is hard to see where suitable replacements could be found. I really hope that UK and Europe are not forced down the same road.

If this is true, which I am having difficulty believing, this is little more than legalised embezzlement of the US taxpayers' funds.

Absolutely, it can't be at market value when there isn't a market value but surely some discount is called for. Aren't the loans even being discounted to present value? And what about the risk in them? Most of these sub-prime loans will never be repaid. I can't see how the taxpayer is ever going to make a profit from this.

Fingerbob seems to me to be right in comparing this to African dicatators - this looks like little more than kleptocracy. How is the US going to lecture anyone about fiscal rectitude now?

Surely buying the toxic waste at this price will merely allow the party to continue as before?

The problem with house prices is that they (and the loans taken out) are just too high for people to afford. Shifting the debts associated with the bad loans will not correct the problem. It will merely defer it, and it will be worse when it happens again...

Unless the banks are put at the mercy of the market, they simply won't adapt to the future. Evolution aka selective pressure (not a popular theory in parts of the US of A) is the only answer.

your comment ref the bailout 'It would represent a massive injection of new capital into the US banking system - for which taxpayers would receive nothing in return' compleltey misses the point. Without it the taxpayers which includes homeowners/consumers/ie basically everyone will see the economy in massive recession with destroyed home values/no credit and a return to the 1920s.And the 'bankers' will still have banked their millions. - this is not a time for schadenfreude. Get real.

Its not the price we should be worried about its the precedent being set. So they're wanting to bale out the greedy banks whose underlying profits are still huge...surely this sets a dangerous precedent, effectively insuring against future risk taking

So next time they pay out all their cash in massive bonuses they can feel safe that when they make a wrong move the taxpayer will bale everybody out...once again with this 'fair' government fat cats get fatter and average joe loses out

What a scam! I want to be a banker now!
Everybody else has to take care of their
illegitimate children.

Comment 50 : protesting_in_vain

I notice you don't mention that part of the action taken now should be preventative, so that teeming and lading with future values becomes impossible. Because, in effect, that's all this fiasco has been about - structuring deals that concentrate the income in the present, and then overstating the overall nett profit by deliberately understating the costs pushed way into the future.

A scam is still a scam, even if it is dressed up to look like financial wizardry.

Time, I think, to set up structures that reward only real financial wealth-creation, and make it clear to the wide-boys that there is no longer any question of them being able to operate by appropriating other peoples wealth.

The tax-payer is getting royally shafted here. It's really a from of blackmail - either you give us money for nothing or we will bring down the banking system and you will all starve to death.

I still, for the life of me, don't understand why congress are not calling for a poound of flesh from the bankers personally, not corporately.

Make the bail-out conditional on all cash bonuses for the last years to be PAID BACK. Apart from the fact that this would raise about $100 billion it would alos ensure that we don't get in this situation again in a few year's time. Perhaps those guys will decide to get a proper job instead of ripping off the public.

Robert Peston is being a little inaccurrate.

Not all of the assets are toxic/worthless. Some assets in each category of asset-backed security e.g. rmbs, cash cdo are worthless and for that reason there are no buyers for any of the assets in such categories - potential buyers fear buying one of the dud assets so much they have no appetite for any asset from one of those categories.

Many of the assets however are still performing and the holder of those assest can derive a return from them. Though I doubt that the US taxpayer will recoup the full $700 billion in the longrun from the assets purchased, a substantial chunk of that figure will be recovered from the assets themselves.

Actually, this whole plan is becoming increasingly
suspect - we are being held hostage by crooks.

Wasn't there some punishment in the distant
past whereby the convicted were repeatedly
dunked in water until they did something virtuous?

We should do that to the CEOs of these banks
until they come up with acceptable terms for
a bail-out - that would be a reverse auction!

I can't help but feel that the sub-prime crisis is just part of a bigger problem - namely huge levels of debt in the US and the UK, both on an individual and on a national level. This is unsustainable and eventually has to fail. The sub-prime fiasco is just the first stage.

The underlying problems are the levels of debt of ordinary taxpayers (which are inevitable given the ever-growing chasm in both income and wealth between rich and poor) and growth in national debt due to decades of pretending that Balance of Payments deficits don't matter any more.

The banks are but conduits. Ordinary folks owe money, via the banks, to shadowy figures who are the net lenders in the "international money markets" - presumably hedge funds (fronting the super-rich), sovereign wealth funds and the like.

The problem cannot be resolved until this level of debt is reduced, and that means transferring wealth back from the very rich to those on low to average income, and changing the structure of the US and UK economies so that their Balance of Payments actually balance once more.

The Paulson plan seems to be going in completely the wrong direction on this - it is taking vast sums of money from ordinary taxpayers and giving it to the banks (and from there back to the super-rich and the sovereign wealth funds who would lose out if the banks fail). It might mitigate the problem in the short term, but it most certainly isn't the long term solution.

robert, two requests:

(1) pls read post 9 from morebalanceplease, which i believe is spot on. pls check with your fed/tsy sources whether "hold to maturity" value means face value or (more likely) the true impaired value of a distressed loan. part of the problem here is that when mortgage loans are securitised (i.e. turned into a cdo) they have to be marked to market. if these were just old fashioned loans, they would be marked at par, less an impairment charge if the loan is distressed. pls can you clarify this point in your next blog as it is very important.

(2) can you pls explain to all of your readers, that bailing out banks is not the same as bailing out bankers. if congress does not approve paulson's plan this week, we are into full-blown electoral campaigning and the plan will die. if the plan dies the markets go to hell in a handbag, the entire us banking system will collapse and everybody on this blog complaining about how paulson is "helping out his buddies" will lose all of their savings. this bailout has to happen for all of our sakes. as for the bankers, you can be sure that whoever gets elected to the white house this autumn will make sure they get their just desserts.

I have to admit I find it difficult to understand why so many side issues are aired and made an issue.

The fact LB was allowed to fold said a much bigger game was afoot. If propping LB stopped the dominos falling it would have been done. That meant LB was on the small beer list.

Such games are not based on shooting from the hip. Options are planned. Parties avoid playing their hand as long as possible because it affects the the deal price if you are buying. Fear has to be present to get a low price. You have to let the fear develop.

The speed of response by the US is admirable, and remarkably different to the UK dithering with NR.

The US action has already had positive impact on the market.

The public enjoys the blame game.

Politicians enjoy the blame game even more and will parade themselves as saviours of the taxpayer. They will also bend to the demands of the public. They have no principles, that is their job. Why are you so surprised.

Such big financial intervention games are not spontaneous.

Paulson and his team are unlikely to be doing the job for money they are driven by other movers. I doubt they are bothered if politically the are maligned by people who can't do the job they are doing. They probably think it is funny. They expect their actions to be assessed for decades. Its all about the deal not where Paulson will be in the future.

The US has to have a US based deal. Somebody has to pick up the tab. The US is wealthy, its not like it is a the 3rd World. US houseowners will want it if it protects their asset. Its what is the best deal overall.

There could well be profit in handling the toxic package for the US taxpayer if the price is right. There could be a loss, it depends. Because the price will be very depressed the deal could well be longterm profitable. Its the banks job to make sure they can still operate and sell at a price that fits.

The US will only act in the US interest. If the US interest does not match the UKs interest the UK has to sort its own problems, likely.

All this babble about side issues stops the necessary focus here on the UK government sorting its act out. The longer the government can point the finger at the US the longer it can avoid admitting problems here and the less likely we are to see progress in the UK. Why on earth should a UK government that has almost certainly been failing in its duty to govern rush to sort its act out. Unless we are careful it will all descend into fudge.

Some people seem to want to live in a risk free world. They are always told the risk is minimal at the point of sale, look at the graph sir. Its a sale technique.

People with gripes about traders trading are misguided, trade has to continue, prices will the move up if they have shot too low. Howling about profit - so what. Profit is the driver.

I regret I do not share the optimism which some have on this thread Robert, regarding Congress exercising its veto on this proposal. I agree that it seems ludicrous to put US$700Bn on the line to bail out the idiotic situation that the Fed, Treasury and others have allowed to develop. However, when did that stop the current administration doing it. Congress will have its dissenters, but ultimately the majority of senators are scared and probably unsure of the real situation. So rather than risk a freeze up of the credit system, they will fall in line with a few meaningless caveats. Also, I predict it will cost well over $2Trillion before the whole range of bail-out proposals are finished. Hope I'm wrong.

Robert,

I think your statement that this will "generate massive profits" for xxx, is a little misleading. Assuming the hold-to-maturity price is indeed above the market price (I agree that's almost a certainty), then buying at this higher price will allow the banks to write back some of the large provisions (losses) they've previously booked on these assets. They won't profit, the pain will just be a bit less!

It's actually a cute move from Paulson. Everyone knows the mark-to-market prices of these assets do not reflect the likely cash flows over their lives. As you say, they're just not trading, and hence the market prices are artificially depressed. An analogy would be the HBOS price just before the Lloyds takeover story broke. HBOS was at 88p, but Lloyds bid at that time was worth 232p.

So Paulson pays "close to" the hold-to-maturity value. Actually, he'll no doubt apply a haircut of 5-10%. As these bonds are currently experiencing higher than expected defaults and non-performance (ie interest arrears), the current hold-to-maturity price will be depressed anyway. Even with this and the haircut, the banks still get to write back some provisions and Paulson has a great chance of making a profit over time.

Why do anything to help the banks write back provisions? Simple. It does indeed improve their capital position whilst removing a great source of uncertainty. That should encourage the inter-bank lending market to return to normal, and then allow banks to get on with their job of lending, prudently, to individuals and businesses who have sensible reasons to want to borrow, eg grown their businesses. Banks need both sufficient capital and funding sources to do that.

Is this all more smoke-and-mirrors? No. The problem we have now is that banks hold these toxic securities for trading (ie short term) purposes. Paulson will hold them to maturity. The market (which isn't working) is "valuing" many of these assets at levels which suggest a degree of default that is simply incredible. I think some are discounting something like a 90% default rate.

The problem is that the market has failed and therefore the price is unreliable. Until last week's problems caused by Lehman's etc, plenty of banks were holding these assets at the depressed values rather than selling them because they knew that, over time, the market would re-evaluate them and provisions would be written back. Many banks had no need, from a capital adequacy perspective, to dump them at forced sale prices. Then we had Lehman, and another round of liquidity concerns about banks generally, and suddenly banks needed to ditch these assets just to give comfort to counterparties that there were no more skeletons. Paulson's plan allows this to happen in an orderly fashion. There is a degree of baling out the guilty, but this is a better solution than having multiple bank failures that impact on all of us more signifiantly than most people can begin to imagine.

Paulson will be a monopoly buyer of these things, so won't overpay. Any bank that thinks he's paying too little just holds the assets rather than sells. Assuming some banks sell, then the others have a more reliable market price to use to value their own holdings. Indeed, that's something few people seem to have picked up on. If Paulson pays higher prices than are currently in the market, everyone gets to revalue their positions upwards (ie to this new market price). Some banks may just hold the securities themselves if they think Paulson's offering them too little. The point is, there is then a market again, meaning there is proper price discovery, and an ability to dispose of assets if the current owner wishes to do so.

Overall, it's neat, and Congress will support it but with a few "slaps" added, eg making sure senior managers pay is severely curtailed, preotection for homeowners faced with reposession etc.

48. grave_sniffer wrote:

"SCAM. SCAM. SCAM.

Oh well, if it stops the collapse of Western civilisation, I guess it's worth it. We'll all just get a lot poorer while the bankers carry on as normal."

Mahatma Ghandi was once asked: "What do you think of Western civilization?" He replied: "It would be a good idea."

Maybe if the current financial "system" were to fail, we would have to reconsider our priorities and might, after an inevitable period of painful chaos, begin building a civilized world.

Just a thought.

62 - This 700BN. It's not 'real' money as such It is actually an estimated value of debts with interest that contain toxic waste. It will never exist as real money. If only 10% of it became real money inflation would go through the roof.

The US govenrment 'buys' all these debts and sits on them. Most of them will come good, a percentage will not. The US govenment believes the default will be in the region of 70BN even after bad debt recovery. To that end, the 70BN is underwritten with - GOLD.

This is where the problems lie. Parts of the market and congress believe that the 10% default rate is to low, and some parts don't believe that the US government has 70BN in gold to under write it anyway.

For it's part, the US government will not allow an audit on it's gold reserves and insists that this is done 'on trust'.

Watch also the dollar on the ForEx. China and the Arab states all hold a surplus of dollars and if the dollar looks like collapse, they may well decide to dump their holdings, then 700BN or not, the west is history. In addition, if the dollar starts to seriously depreciate, oil and gold will go through the roof.

The Americans are being either unbelievably brave or unbelievably stupid. In 12 months time we'll know.

In the meantime watch these 5 clips in the order they are below. It helps explain things quite well.
https://www.youtube.com/watch?v=ThXpjmfyiMQ
https://www.youtube.com/watch?v=sanOXoWl0kc
https://www.youtube.com/watch?v=kTv1fo6sKmo
https://www.youtube.com/watch?v=3qicabStQkc
https://www.youtube.com/watch?v=7kpSbkaD4tM

Other central banks will have to similarly bail out their banks or else the only functioning banks, the recently rescued American banks, will step in and take all their trade.
This really is a strange topsy turvy world where we cannot allow banks to fail yet we get constantly stuffed by them.
Could we all become bankers?
No. Somebody has to do real work.

So. Who sets the number of bankers we can support?

Bankers of course!

I'd simply call this plan evil. Will evil succeed?

Taxing the poor to save the rich.This is a an abomination.

Seems that Paulson et al would be better addressing the root cause which they tell us is the defaulting mortgages.They should be focusing their energy ingenuity and the taxpayers dollars on reducing the number of defaulters by providing extended mortages to the hard pressed. Fanny and Freddy the state owned mortgage companies are ideally placed to move quickly and efficiently. Less defaults means less repossessions with all its social consequences, more confidence in housing market which should help stablise prices and restore some confidence in the housing market. This should then start to restore confidence within the financual stystem and the taxpayer will get their money back eventually. Plus no rewards to the bankers who got us into this mess in the first place.

THE CREDIT CRUNCH EXPOSED THE DRIVING FORCE BEHIND GORDON BROWN’S BOOMING ECONOMY.

To feed the greed and gambling of the bankers the economy was heavily reliant on the momentum of ever-increasing property prices.

Up until 1997 Mortgages were only to be used for the purchase of property; loans for all other purchases had to be through a bank loan or hire purchase, which were short term and had a higher rate of interest, there was a separation of deposit banking and mortgage lending. The lending banks and building societies were strictly regulated.

However, Mr Brown decided that he didn’t like that anymore. So in 1997 he introduced a system were we had, the Financial Services Authority, the Treasury, and the Bank of England, (the Tripartite Authorities) carving up the job amongst them. Just one big problem – when there was a crisis, apparently nobody knew who was in charge. The effect of all this – the system unregulated.

The bankers most certainly knew the enormous value of these secure assets, and that they would be the driving force behind a powerful booming economy. They knew they would make a fortune if they could trade them on the US financial markets in the same way as US government-sponsored-enterprises, or GSEs. However, the bankers knew they couldn’t be traded unless they were taken out of their protective regulation. So how did they get their hands on them?

Well, first, you must know what you are doing, and know how to have them deregulated. By changing the banking system in 1997, banks used the asset of their mortgagor-customers-homes to raise collateral. These mortgage-backed-securities were re-package and sold on in the form of Collateral Loan Obligations (CDO’s) and in other similar stealth products through institutions, but an institution is not called a bank, and therefore operated outside strict bank regulations. This was the key to the unscrupulous bankers making a fortune. The question one should keep in mind is, was it Mr Brown's idea, or the Bankers' idea, or both? Who persuaded who?

AP are running a story that has Bernanke saying 'Approve the bailout or risk recession'.

The problem I have with this is that I can't see how the bailout reduces the risk of recession. OK it MAY lower the risk of a disorderly market collapse, but even with the plan I do not see it as sufficient to avoid a recession and possibly a slump/depression 1930's style.

The housing debt will still be weighing down on the US economy. Banks MAY possibly trust each other to lend money to other banks, but I do not see that it is even wise to re-stoke the fire under the housing bubble and I do not see that the Poulson plan will do this at all anyway.

It is also interesting to read that Paulson said that would it be a "grave mistake,"(to (underfund the scheme) as it would fail to give the markets the confidence they need to rebound.

So we have the real story: Poulson wants the stock market to rebound as the aim of the plan. The plan seems now to be a rescue plan for the stock market not even for the banks!

The Poulson plan appears half-baked and ill targeted if the real aim as Poulson said himself is to prop up the stock market.

Why this? Why that? Why the other?
How can they get away with it?
etc, etc

I do feel sorry for the US taxpayer, honestly I do, but when the country elects a group such as those currently running the show, it can't come as too much of a surprise.

Where are their vested interests?
Armaments. Been there, emptied the ATM.
Military support. Been there too.
Energy/oil. Yep, what a summer!
FS/banks. Err..... now showing?

#14, gets my vote for comment of the day!

Shame.

Why can't the US government simply nationalise the insolvent banks and keep them running? $700 bn is more than the current capitalisation of the big banks which are at risk: Citi = $100 bn, Goldman = $50 bn, Morgan = $30 bn....etc.
Then the government takes both the risks of the bad debts and the rewards if some bad debts recover. All the bank workers can keep their jobs - except the key managers responsible who would be sacked. Shareholders are not robbed, and do better than if the banks failed.

Or is this simply too un-American?

Even if we assume, for the sake of argument, that the current plan is indeed vital for the survival of the US banking system, it is surely equally vital that the banks, and ideally the bankers themselves, pay a price. If the taxpayer ends up bearing the risk and footing the bill for the reckless behaviour of the banking community, then there is absolutely nothing to deter them from repeating such folly in the future.

It surely cannot be beyond the wit of Paulson, Bernanke et al to devise a plan that safeguards the interests of US taxpayers. Would it not be possible, for example, to recoup any future losses suffered by the US taxpayer, perhaps in the form of a windfall tax on the banks, once the final cost to the taxpayer becomes clear. If the US taxpayer ends up making a profit, as some have suggested, then fine. But there has to be some way of ensuring the banks pay in the event that the taxpayer ends up making a loss. Otherwise, the banks will simply conclude (if they haven't already done so) that they can never lose.

And we thought our Gov't bailing out Northern Rock was a problem with its 7% "at a stroke" increase to debt as a % of UK GDP (however you measure it!)

Poor US taxpayers.

Hell has three gates: lust, anger, and greed”

Bhagavad Gita

The US citizens should rise up in revolt due to this sham being played on them. Its all about the big players playing the field, shaft the average Joe.

In fact we should all start to become bankers and print our own money that is based on 'DEBT'

If the public are to provide the funding for a banking bail-out I suggest that if the bonds succeed the tax-payer gets a bonus pay-out from the good performance .i.e. in return for taking money from each tax-payer make each tax-payer in effect a fund manager!

What would be the advantages and disadvantages:

FOR THE TAX-PAYER:

Disadvantages:

(1) They must pay for the bail-out, but hey as it is they are on the hook for that anyway so what real difference could it make?,

(2) The bonds may not perform! Fair enough this is indeed a possibility but that will happen no matter what the method of funding and as things stand (for the public) all they get for a tax-hike is a measure of governmental/financial stability at present,

FOR THE GOVERNMENT:

Surely a potential vote-winner: The public harbour envy at banker's remuneration and wish they too had that remuneration-well give them a chance at some gambling excitement, break down the "them and us" barrier and make us all speculators-in for a pound in for a penny.

FOR THE BANKS:

(1) They get their bail-out and get rid of their toxic debt packages. If the debt bonds do appear to be so bad after all they should be glad to have got rid of them.

(2) If the bonds eventually perform well-fine the banks lost out, but (forgive the sarcasm) in that time surely these "masters of the universe" could think of some other money making scheme?-and after all, as things stood as of last Friday-they were onto a loser, time not to socialise the losses, lets socialise the winnings this time too!

Goverments in the west face a growing public resentment at a "them and us" society-prices increase constantly, the debt level of citizens shoots through the roof, whilst at the same time the media constantly antagonizes the public with "lives of the rich and famous"-type fly-on-the-wall-type documentaries about bankers: you sit at home worrying how to pay the gas-bill whilst some late-20-something brags about buying a villa in Tuscony out-right with just a portion of his/hers cash bonus-how do you really expect people to feel when they see things like that?, and Brown et al say they wish to promote "fairness". True fairness would put profits in the hands of the financiers-and this time round the financiers are the public!

Sure any profit divided by the numer of tax-payers will be a small smount each-but it has to be better than nothing for an extra swipe from your monthly pay-packet!

Credit is the oil in the economic engine and a lack of it causes seizure.

Which is precisely what is happening, here and over there.

If #53 is correct, there is no need for a plan B as Bush will force plan A into existence.

After all, he hardly needs to worry about being re-elected.

Its messy but there we have it.

Capitalism is going through yet another 'eat itself' phase.

By the time it is over, the rich will be even richer, having picked up assets for nominal sums and the rest of us will pick up the crumbs.

Until somebody comes up with a better system, that is our fate.

"The popular press will might (will?) whip up hysteria against the bankers and the government will be forced to go overboard in the punishment to placate the mob in a feeble attempt to win the next election. This will be no good for anyone."

Why won't it be, harsh punishment sounds good to me. Why should we be gentle in our punishment of these greedy, thieving bankers?

The comment by 'more balance please' is accurate...the Fed must act as market maker for these securities in order to allow the banks to continue functioning.
Many of these securities will be paid down over time and presumably the Fed will be able to let some back into the marketplace as balance is restored. As a former market maker for individually-listed securities (back in the ancient 1970's) my role served the same albeit much smaller function - to provide a balanced venue for trading. It will work, given widespread support and patience on the part of the investment community and the trading public. The real travesty people should criticize are the foolish Congressional reps who are trying to stick on 'pork barrel' provisions to a Bill which urgently needs passing.

Velcome to the new America comrades!

Yes siree! The new socialist empire formed to complete the elimination of the middle classes has now landed. Quick get me the vodka!!

But comrades! Them mortgage owners along with every other tax payer in the
country will soon own/share all them mortgaged houses collectively together.
Whey hey! Why, they'll all just be sharing the load, kind of thing. How fair and pleasant.

All of these mortgaged houses will simply be looked after on their behalf by selected representatives of our new empire. e.g
Administered by a few of our higher and cleverer more deserving, richer
citizens! (The new debt collectors) A nice spanking brand new world order.

Nice surfing dood!!!

I like the way you cut to the peak before the wipeout!

The US economy is an overgrown fat remnant of Capitalism in a Post-Capitalist world.

During the 1980's Margaret Thatcher lead this country from the cold war capitalist/socialist struggle to lay down solid building blocks and create a nation where more people could own their own homes; unprofitable businesses and public sector organizations were closed or changed to be fit for purpose and the majority of the country felt that she was leading in the right direction. This was not traditional Capitalism, it was what now has become known as Thatcherism. Things weren't perfect and many around her became heady with their own success. But this was a nation that encouraged everyone to be entrepreneurs and created the prosperity that we have been squandering since. I don't believe it was an easy decision for Baroness Margaret to close the mines or make other policies law that she knew would hurt. I'm sure that she was doing it in the way a mother would discipline a child. It was an act of tough love so that we would be able to move forward from where we were to become world leaders once more.

Although Gordon Brown constantly talks about how he has to make tough decisions I think the toughest decision he makes every morning is "do I look serious today or do I wear that stupid grin?"
Gordon proudly stood so many times in the House of Commons with that stupid grin stating that there have been so many quarters of growth and patted himself on the back giving himself full credit.

Well now times have changed Gordon. You have failed. You lied to us telling us we were all going to be better off. But this was because the price of our houses were going to be rising at 10%-50%. You let us take out loans and credit card debt on the strength of your unsound policies.

George Bush has slammed the stable door after the mare has bolted and is now mesmerizing everyone to believe in his new foal. Well we can take a look on Monday and see how it is. I doubt that it will have the stamina to carry the load long term. He has effectively devalued the dollar. That didn't get Wilson anywhere in the 1960's and I don't think it is the only solution now. Although this may be a necessary evil in the long run. And yes George it has happened before. With your "unprecedented measures" you are just running on from a old fashioned UK Labour party policy of intervention.

No, we shouldn't blindly follow the Americans with their interventionist financial policies. This is a key time in our history and Gordon Brown and the Labour Party have no mandate in the country. We did not choose him to be our leader although by not turning out to vote or voting for Tony Blair there may be some who are guilty of inflicting him on us.

We should be leading the world though this period. We should be inspiring people to live better lives, be more family centric, to treasure our planet. We should be moving the accent from just work and financial well being to true quality of life. We should be discussing how we are going to control the explosion of the human population on earth while we still can. And to do this we need someone who understands, doesn't keep telling us what tough decisions he's taking on our part and gets on with the job of doing it!

The federal reverse has already accumulated lots of toxic weAAAlth ,which no doubt it would like to exchange for real money from the proposed 700 billion dollar taxpayer funded bailout , and then loan to its friends on waltz st

Paulson and Bernanke are the banking equivalent of Laurel and Hardy ,one can admire their brAAAzen bAAAlls, but they should be castigated hanging's to good for them


BernAAAnke should just turn to PAAAulson and say "Thats another fine mess youve got me into "

Paulson having AAAquired $700 million dollars through creative AAAcounting now wants $700 billion for chAAAritAAAble works

if true, this is outragous! what about the reverse auction idea? these banks would only be too willing to get the assets off their balance sheet at fire-sale prices.

is there a secert agenda here? why has paulson all of a sudden seem to be running the show? it was part of his appointment was that he was answerable to no one. He seems to have more power at the moment the george bush.

there seems to be a concerted effort to get this money printed asap. would the no-con republicans be realise that the democrats, in the form of Obam, be in the White house, and they just want to leave as big a mess as is possible? or is that too synical?

is there any advantage to the amercian government getting this money into circulation? was is not bernakes idea that inflation, of which this bailout will create, actually helps bring down the national debt? using that theory... is this 1 trillion dollar bailout.. free money!?

also, about city bonus's. why not roll them up for 5 years. during that time, their bonus compounds interest but also diminishes when thing get bad.. ie it more like a pension, than manna from heaven every December!

This is staggering. Congress, which has the constitutional right to review budgets, is being asked to hand over $700bn, which becomes the executive's own private pot of cash, without even a board of control.

Get this list:-

No on-going Congressional oversight;
No checks and balances;
No taxpayer equity in the banks;
No additional regulation;
Precious little accountability;
No restriction on remuneration policy;
Banks' past follies paid off in toto;
Total moral hazard.

I've even heard that one of the investment banks is offering to manage this new fund for a $1bn annual fee!

I was also struck by quite how smug Paulson and Bernancke looked. They are holding a gun to the head of Congress.

If this goes through, the US Constitution will be arbrogated. Congress must surely, surely say NO. Whatever the consequences.

Whoever you are, whichever way you look at this mess, we're all a lot less rich than we thought we were not so long ago...

#78

"#14, gets my vote for comment of the day!"

Seconded!

#93

Not ALL of us are less rich.

Those who stayed out of the housing bubble, did not borrow and held on to their cash are feeling a lot richer now.....

....maybe soon we will actually be able to afford a house without taking on a millstone of a mortgage.

I heard some one on Bloomberg say this plan was fine because "the boys on wall street know how to make money" and the news presenter nodded in agreement.

These people are mad. The guys on wall street haven't made money, they've lost trillions and trillions. And now US politicians are about to hand over trillions of tax payers dollars to these clowns who gave mortgages to people with no job and no income on the basis that house prices would go up for ever. And then sold that mortgage as AAA to their bank's best customer from europe.

I've got a better plan. Legislate to force the banks to unpack their mortgage backed securities and sort the wheat from the chaff. Those who are broke go down and the rest survive to make money.

Nomura and barclays employing clowns like these speaks volumes. Steer clear.

No, no, no--a thousand times NO!

To hand over to the banks the hypothetical value of these mortgages that should never have been written!!

I listened in as the Senator from Ohio asked a simple question: In light of these events, doesn't Wall Street owe the taxpayer an apology?

And Paulson and Bernanke could not even make their lips form the simple word 'Yes'!

No, no, no--never, no way, no how, not in America!

I am sending the url of this installment of Peston's blog to everyone I can think of!

Oh dear ..

Oh dear ..

Oh dear ..

How on earth are the politicians and central bankers going to pass this off as an acceptable solution to the voting public.

Shares in any company have always reflected the value others place on it.
Currently people see little value in the Banks ... as a consequence their share prices reflect this. All is functioning correctly in the World of equities.

OK, so the banks have insufficient cash to service their debts which are coming home due to poor lending policies, and additionally not correctly pricing risk in lots of little (for little accumilate up to big, very big) derivatives.

OK, make them suffer their losses. If they need to sign up for more cash, then let the borrow it like any other organisation at market rates.

They are not a special case. Banks do not create investment, they service it.

If they have gone off trying to create investments when in reality they should only have been servicing it (for fees) for others, and they are losing on this deal, then let them sustain the losses. Then can then cut their cloth to fit, namely reduce scale, remuneration, and costs.

Eventually market forces will do the work for the politicians and central bankers, namely find the right level of value in these organisations. If there is none, and they fail as a going concern, then some other enterprising organisation will come along and take up the slack.

It is the Darwinian theory elementals of economics, and it should not be messed with. Mrs T was and will always be right, you can not buck the market.

Also in this is the decision making principles.

I can easily foresee a class action against the Fed for chosing to allow Lehmans to go, yet not others. The problem with having God like powers is that you must justify them.

How many other organisations that are not Banks or Investment Houses can hope to gain such favourable state assistance when the squeeze the banks put on them (in order to shore up their finances) places their business in peril. Clearly the auto-makers are not so favourably viewed.

I can see congress begrudingly approving this with great debate and delay, despite what Paulson wants, as there are 'again' too many risks being ignored, and the only perceived benefit to the taxpayer is to continue the status quo, which got us where we are now !

#89 Jonnie_London.

Please stop repeating your posts, I recall demonstrating the good grace to read this post some weeks ago, please have the good grace not to keep repeating it, you are as bad as Channel 4 is going to be !

50. At 8:11pm on 23 Sep 2008, protesting_in_vain wrote:

"What price did you expect the bailout to be at? If at current market, it achieves nothing. The whole point is to transfer the possible future losses to the US Government, in the hope and expectation that, by doing so, the financial markets can begin to move again. And in that process, reduce the risk of those future losses actually crystallising."

What is wrong with buying the assets at current (depressed) market value and then doing a seperate deal to recapitalise the banks with some sort of deal including an equity stake?

Probably more paperwork for Paulson and his ex-colleages will take a hit in the annual bonus but that way the tax payer actually stands to benefit on both sides of the deal (and the banks may actually have to take some of the hurt that they have caused).