In Search of One Bold Stroke to Save the Banks
By JOE NOCERA
NYT
In the immortal words of Yogi Berra, it’s déjà vu all over again.
Wasn’t it just four months ago that the government was racing to save the American International Group, forcing the sale of weak banks and writing huge checks to stabilize the teetering banking system? The worst was over — or so we were given to believe.
It sure hasn’t worked out that way. In November, not long after it was handed $25 billion in new capital, Citigroup was back for more — another $20 billion in bailout money and a government backstop of more than $300 billion in potential losses. This week, alas, it’s Bank of America’s turn. It came crawling back because of the huge write-down of its shiny new toy, Merrill Lynch. It got another $20 billion and a backstop against losses of $118 billion in troubled assets. There are rumors that Wells Fargo might also need more capital.
When is it going to end? Because of declining asset values, the original bailout money has largely disappeared. “It’s like putting money in a pothole that keeps getting bigger,” said Daniel Alpert, the managing partner at Westwood Capital. And it’s not over yet. Goldman Sachs says the world banking system has absorbed about $1 trillion in losses — but there is likely to be another $1.1 trillion yet to go.
The response has got to stop being so haphazard. Think about it: Citigroup is slimming down. Bank of America is bulking up. The government is essentially backing both approaches. It makes no sense.
(More here.)
NYT
In the immortal words of Yogi Berra, it’s déjà vu all over again.
Wasn’t it just four months ago that the government was racing to save the American International Group, forcing the sale of weak banks and writing huge checks to stabilize the teetering banking system? The worst was over — or so we were given to believe.
It sure hasn’t worked out that way. In November, not long after it was handed $25 billion in new capital, Citigroup was back for more — another $20 billion in bailout money and a government backstop of more than $300 billion in potential losses. This week, alas, it’s Bank of America’s turn. It came crawling back because of the huge write-down of its shiny new toy, Merrill Lynch. It got another $20 billion and a backstop against losses of $118 billion in troubled assets. There are rumors that Wells Fargo might also need more capital.
When is it going to end? Because of declining asset values, the original bailout money has largely disappeared. “It’s like putting money in a pothole that keeps getting bigger,” said Daniel Alpert, the managing partner at Westwood Capital. And it’s not over yet. Goldman Sachs says the world banking system has absorbed about $1 trillion in losses — but there is likely to be another $1.1 trillion yet to go.
The response has got to stop being so haphazard. Think about it: Citigroup is slimming down. Bank of America is bulking up. The government is essentially backing both approaches. It makes no sense.
(More here.)
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