(c) 2008 Ira Artman

STERLING SLIVERS -  Capital Nil

Rod:

“Suppose, for a moment, that you were a hard-working public servant. How would you feel if all of  your hard work added up to nothing? And that this was not the view  of  the  far-out fringe or some obscure blog, but the views of government agencies that you thought were working with you to save the US economy and halt the market meltdown.

“If you could do all of these things, then you would know exactly how Treasury Secretary Henry M. Paulson Jr.  feels. 

“Secretary Paulson believes that we must restore confidence in our financial system.  The first step … is … to make capital available on attractive terms to a broad array of banks and thrifts. 

“On Oct 14,  Secretary Paulson, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair announced plans to protect the U.S. economy, to strengthen public confidence in our financial institutions and the credit markets.  They intend to do this by making available $250 billion of capital to U.S. financial institutions [in the form of]  … a preferred stock investment by the U.S. Treasury.

“There’s just one problem.  As reported in the Oct 18 Washington Post by Binyamin Appelbaum and David Cho,  U.S. Bank Plan Hits Snag in Rules, the Federal Reserve’s own rules exclude from core capital shares that pay an interest rate that increases over time.  Since, as the Post reports,  the shares issued to Treasury would pay 5 percent for five years and 9 percent thereafter, it would seem that the new “capital” isn’t really capital at all. The FDIC and the Office of Thrift Supervision  are undertaking reviews to see whether or not the $250 Bn “counts” as capital. 

“Thank you again for spending a few moments with me today.  I hope that when we next meet, we will know if the Oct 14 plan is truly a capital idea, or simply a hill of beans.  I hope I will see your wide-eyed face, when I  next return with a new  …  Sterling Slivers.”

[Theme music ...  Up and then fade]

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I  used to work with numbers for a living, but now I’m clearly not the only one who’s trying to make something out of nothing. Till next time – Ira Artman

REFERENCES

 
B. Appelbaum and D. Cho, Washington Post – U.S. Bank Plan Hits Snag in Rules, Oct 18, 2008.

 
Dictionary.com, The American Heritage® Dictionary of the English Language, 4th Edition. Houghton Mifflin Co, 2004, wide-eyed: adjective, “Innocent; credulous.”

 
US Treasury, U.S. Government Actions to Strengthen Market Stability: HP-1209; and Joint Statement by Treasury, Federal Reserve and FDIC: HP-1206, Oct 14, 2008.

 
WebDictionary.co.uk, capital idea: first rate idea, from British adjective, capital: first rate.

Manhattan Transfer, “The Very Best of The Manhattan Transfer” – Twilight Tone/Twilight Zone, Rhapsody, Rhino Atlantic, 1994.