Fed Begins Process of Seizing Banks

Link: http://www.cnbc.com/id/27190596

CHICAGO – 1924
In a meeting hosted by Al Capone the heads of the nations 9 largest banks were sequestered in a meeting room while Mr. Capone explained he would be buying a percentage of all 9 banks. Mr. Capone left no room for negotiations of the terms, he made it clear to the bankers they would not be allowed to leave the room until they signed agreements to the equity seizures.

No, that is not really what happened but it sounds plausible.

Follow up:

NY Times Article Drama Behind a $250 Billion Banking Deal
reprinted on CNBC.com website outlines the meeting between Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernake and the heads of the nations 9 largest banks on Monday Oct. 6th.

The 9 were ushered in at about 3P.M. and handed a one-page document that said they agreed to sell shares to the government. Sec. Paulson (author of the original bailout / cover-up bill) told them they must sign it before they left. To his credit Richard Kovacevich head of Wells Fargo Bank protested that his bank was not in trouble from the exotic mortgage mess, unlike his New York counter parts. But, by 6:30 all 9 had signed the document, beginning what could be the largest seizure of private bank assets by government since the great Depression if not in the whole history of our country.

What exactly did happen in the intervening 3 hours? What tactics did the Mr. Paulson employ? Where in our Constitution does Mr. Paulson derive his authority to FORCE banks to sell equity stakes to the government?

Your tax dollars at work?
This week the government said it will temporarily guarantee $1.5 trillion in new senior dept issued by the banks.
The government will insure $500 billion in deposits in noninterest bearing accounts that are primarily used for business.
Sum total, the cost to you the tax payer is $2.25 trillion in this the latest bailout / cover-up package. This of course is in addition to the $700 billion (actually $850 billion with sweeteners) bailout / pork barrel / cover-up bill that was recently enacted.

“It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.”

(This take it or take it attitude is why I use the word seizure to descript this "purchase").

Bankers expressed concerns over how the governments stake in the banks would affect preferred shareholders. Would the Fed. demand control over management in return for this investment? How would the warrants for stock work?

With the discussion becoming heated, the chairman of the Federal Reserve, Ben S. Bernanke, who was seated next to Mr. Paulson, interceded. He told the bankers that the session need not be combative, since both the banks and the broader economy stood to benefit from the program.

Now for my Comments:
Keep in mind we would not be in this mess if it were not for the interference of government in the private mortgage market with the CRA (community reinvestment act i.e. affirmative action housing) and the unbridled actions of Fannie Mae and Freddie Mac.
Fannie and Freddie would have been reigned in had the Democrats not blocked efforts to do so. Chris Dodd in the Senate and Barney Frank in the House refused to admit any problems existed nor would they allow any actions to regulate and restrain them. (see article Barney Frank is Conflicted).

So now we begin the wonderful stroll into our new socialist workers paradise.

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