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Did wall street actually get bailed out?



February 16, 2011 – Comments (10)

I am sorry to post twice in the same day, I am sure everybody gets sick of listening to be yap, lol. It is commonly stated that wall street was bailed out, moral hazard galore gave free passes to investors and to banksters and all of that.  

Tonight I was surfing some vids of various famous hedgies on youtube, and somehow wound up watching some vids about the Chrysler and GM situation.  Remember, the one where US Law was flatly broken so that Obama et al could give the companies to the unions?  Here are some vids:

There are alot more if you want to listen.  

And then beyond that I sat down and thought about the outcome for equity investors in various banks...  

Countrywide:  bailed out privately by bank of america after taking big losses

Bear Stearns:  for all practical purposes they were wiped out

Lehman:  gone

Ambak:  gone

CIT:  wiped

Merril:  severe damage at best, I can't remember what BAC paid for merril

Citi:  for all practical purposes the crisis destroyed the equity holders.  Decades to recovery at best, even after a 400% rally, they are down 90%+

BAC:  severe damage and dilution, probably a decade until pre-crisis buyers are even

Wachovia:  severe damage

Washington Mutual:  I don't now but at best the damage was severe

MBIA, AIG, Fannie and Freddie, etc.  

Investors were more or less wiped out across the board.  GS, MS, WFC, USB survived I guess, but still.  The net loss for someone holding a portfolio of every financial involved in the housing bubble would be ruined.  So the argument that investors were bailed out holds no water on the equity side.  SPECULATORS buying these things post-lehman were quite possibly bailed out, but ... at the end of the day I don't think anybody will be encouraged to buy equity in an ill behaving financial on account of the fact that the gov't will always bail them out.  Stockholders got slaughtered, and dilution was forced on everybody including banks (USB, maybe WFC) that wouldn't have needed it.  I know literally nothing about the bond markets so I can't comment there.  

Beyond that, the bank/financial aspect of the TARP program will turn a profit for the taxpayer. See here from a recent article on FITBs payback.     From reading commentary by Bruce Berkowitz and another spot on the web, AIGs bailout should ultimately prove profitable for the taxpayer as well.  

Now, TARP is still, per that article, expected to lose money.  But that would fall apparently at the hands of the auto bailout.  And where did the auto bailout go?  To the unions.  

The bailout of Fannie and Freddie I am sure will never be recovered, but, then, those are government sponsored entities and how did they lose so much moeny?  Giving money to people who didn't have any to buy houses they couldn't afford?  

In and among all of the rage and all of the hyperbole and all of the dramatic commentary and discussion of how banks control the world, we find...  

-equity holders in financials were destroyed.  at most they would have been destroyed a little bit more absent tarp.  They lost ... on shares bought in the bubble and held, diversified across all of the companies, what?  80%?  70?  The companies that still have share value would have survived anyway, and wouldn't have had forced dilution.  

-Tarp turned out to be profitable, except a little socialistic/liberal contribution to the auto union

Those seem to be the facts:  destroyed investors and profitable taxpayers.  Save Fannie, Freddie, and that big contribution to the unions.  Idon't know what to say about Fannie and Freddie, the big losers... I think thats maybe a point for discussion and exploration.  Who were we bailing out there?  Not investors.  Wall Street?  The world who holds the paper?   How did they get in trouble in the first place?

Anyway, destroyed investors and profitable taxpayers.  Never really see anybody discuss that one.


10 Comments – Post Your Own

#1) On February 16, 2011 at 2:20 AM, checklist34 (99.06) wrote:

and an oval office who violated american law.

to give handouts to its supporters.  

But nobody seems to ever really blog angrily about that, while the bank bailout has entire highly popular websites more or less devoted to screaming about it.  

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#2) On February 16, 2011 at 5:59 AM, dbjella (< 20) wrote:

I think what I am mad about is that the "survivors" were orchestrated by the Fed and Gov't.  I owned a little WM (I know it was dumb to own them) and they didn't get "bailed" out, but instead they were left to crash and burn.  AIG?  Why did they make it?  GM?  I worked for that piece of crap.  The financial side that is and they should have brought that place down.

I guess the old saying goes "Its good to have friends in high places." 

Your blogs lately have been fantastic.  The one about the guy playing it safe versus the risk taker was the best.  I sent that to everyone I knew.  I am going to use it with my risk avoidance son when he is a little older. 

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#3) On February 16, 2011 at 1:16 PM, leohaas (29.35) wrote:

"Merril:  severe damage at best, I can't remember what BAC paid for merril."

Way too much. Merrill was going the way of Lehman (last line).

PS. The vid is actually an aud.

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#4) On February 16, 2011 at 1:16 PM, checklist34 (99.06) wrote:

from an investor standpoint, AIG and GM didn't make it.  shareholders were destroyed

I suppose AIG could have been left alive so that the gov't could recoup its investment, which apparently the selling of its shares of common stock will accomplish.  

I think the only real survivors are USB, WFC, GS, MS, JPM and probably alot of smaller players I haven't ever followed.  But those companies would have lived anyway, and USB shareholders would probably be better off without tarp.

thanks for the input, and thanks for the kudos, I really appreciate it when people enjoy my comments.  I mostly throw them out because there isn't anywhere else to dump them, and for that I am grateful for my blog here.

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#5) On February 16, 2011 at 11:00 PM, russiangambit (28.97) wrote:

They would've all failed without the government , FED's and Warren Buffet's support - BAC, JPM, WFC, MS, GS. The credit markets were frozen. So, yes they did get bailed out and still continue to be with super low interest rates.

I am sure there is a juicy story we'll eventully learn about Buffet and bailouts. He keeps saying WFC is such a wonderful company. How so? They are no different from the other big banks. They are actually pretty bad when it comes to customer service and online presence.

I have to say, I like USB. I once participated  in choosing a procard provider. So, all big boys came with their pitches. USB was the only bank that had it act together , their people knew what they wer talking about. The rest of them, typical salesmen, kept promising sky and the moon which I knew they couldn't deliver.

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#6) On February 17, 2011 at 12:18 AM, ultrapaz (29.96) wrote:

The biggest BS bailout was AIG....


They wrote so many credit default swaps against every big corporation in America and as a result of being saved put the taxpayer on the hook for what could have been a deserving bankruptcy and loss for a few overly rich guys like Warren Buffet. 

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#7) On February 17, 2011 at 12:27 AM, checklist34 (99.06) wrote:

leo, sorry I didn't see your comment earlier.  weird.

Thats how BAC went from "good bank" to "near death", isn't it?  by taking on Merril's mess, and overpaying.  When I first came to the market, BAC was already, alongside citi, one of the "bad ones".  

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#8) On February 17, 2011 at 12:30 AM, checklist34 (99.06) wrote:

Gambit, i think USB is the best big bank in the country.

I am not so sure about WFC.  In fact, for a few nights I've taken a few hours and dug about a bit in WFCs stuff since they are back in the headlines with a spot of controversy over the CFO leaving... 

I am not sure they deserve the significant valuation premium relative to their peers, and several aspects of their reporting seem unusual.  

Dumping WFC in the morning methinks

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#9) On February 17, 2011 at 12:30 AM, checklist34 (99.06) wrote:

gambit:  good point about the "hidden bailout" via super low fed funds rate et al. 

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#10) On February 17, 2011 at 12:31 AM, checklist34 (99.06) wrote:

ultra, ultimately, though, the gov't appears to be likely to make a profit on AIG. 

so it was really the AIG investors who paid for AIGs sins...

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