Wells Fargo Chairman Prefers To Save His Own Ass

Bloomberg is reporting that Wells Fargo Chairman Richard Kovacevich prefers the latest plan from the US to invest directly in banks through stock purchases over the original plan to buy up toxic assets from troubled banks. Of course he prefers this plan, it’s the one that works best for him as the CEO of a major bank. However, it’s also the plan that bends the American taxpayer over and has him grab his ankles for the next 5 years or so.

In case you hadn’t heard, Hank Paulson is now selling us on this plan to partially nationalize the banks of the nation as a way to get the economy going again. The problem is, we’re getting practically nothing out of our $250 billion dollar investment. We’re not buying preferred shares, we’re not getting a guaranteed interest rate, we’re not getting seats on any of the boards of these banks. We’re just a really big investor, nothing special at all. Warren Buffett got an infinitely better deal when he bought into Goldman Sachs a few weeks ago because he got preferred shares paying a 10% dividend plus the option to buy more shares at 10% below the strike price of the shares he bought. He got all this with a mere $5 billion dollar investment.

The American taxpayer, via our buddy Hank Paulson, is investing 50 TIMES THAT AMOUNT and yet we’re getting a much, much worse deal. We can’t force the banks to use the money to lend, we don’t have the option to buy more shares at a lower price and since we’re not getting preferred shares, we get a shitty interest rate return. There is nothing good about this plan for us and everything good for people like Wells Fargo Chairman Richard Kovacevich who gets a basic free $25 billion investment.

And the dog-shit icing on the elephant turd cake is that we’re not even solving the right problem. It’s not a liquidity problem that is causing the economic markets to tighten up their collective lending assholes, it’s a trust problem. We’re basically throwing a trillion dollars at the wrong problem. Anna Schwartz talked about this in this weekend’s Wall Street Journal. I strongly urge you to read that article to understand why we’re in so much trouble. We’re being led by people who don’t seem to be able to determine what the problem is, much less how to solve it. Either that or they are kowtowing to public opinion and when the original plan, which did address the correct problem, didn’t serve to immediately relieve the financial markets, they folded like a house of cards and went looking for a way to get immediate gratification.

Back to the original theme of this post, in the original plan to buy toxic assets from banks, we would have been addressing the central problem of trust. Currently, banks don’t know who to trust so they are refusing to loan to other banks. They have this sense of distrust because they have no way of knowing how much worthless shit is sitting on the other banks’ balance sheets. Until that distrust is resolved, we’re likely to continue to have a very cold credit market. If Paulson and Bernake would have stuck to their guns to buy toxic assets, at least banks could start to feel comfortable lending to other banks. Once that happened, the credit markets would start to loosen and money could start to flow again. It was a bailout that actually had a chance of working.

As it is, we’re about to flood the system with an insane amount of money, probably leading to a scenario where hyper-inflation terrorizes the dollar in a year or two and on top of that, we the taxpayers are getting a deal that’s almost guaranteed to not make us money. Welcome to your US government. It’s gonna be a fun ride.

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