Why don’t we just set up a "bank tax" and give the proceeds to the banks rather than pretending? Paulson:
Consistent with the legislation, any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market standard terms to protect our rights as investors.
So, the banks, whose management of their own business has been so good that they are probably all bankrupt, are going to get a capital injection which:
- gives the government no control – no board members, no votes, no nothing;
- does not force them to change how they do business either in their basic business model or in the sense of forcing them to lend, and therefore
- doesn’t necessarily solve the problem, since 350 billion, or whatever, may not be enough to make them solvent. We just don’t know. And,
- even if solvent, they still might not lend, because they still won’t want to lend for below inflation and they still want to keep money dry so they can buy up assets and other companies on the cheap when fire sales occur
Note also that making money on shares requires the share price to appreciate. That could be a long long time in the future for some of these institutions. A lot will depend on what price Paulson sets, whether he insists on guaranteed dividends, if he gets warrants set at decent prices, and so on.
There is no reason not to insist on Buffett shares, and real control of the companies. Stop screwing around and de-facto or outright nationalize them. If they aren’t able or willing to lend they obviously aren’t functional banks and maintaining the fiction, and executive salaries, is a very costly illusion.