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Bank of America Says "Paulson Bailout Plan Benefits Mostly Goldman, Morgan"

Companies / Credit Crisis Bailouts Sep 23, 2008 - 06:20 AM GMT

By: Mike_Shedlock

Companies Surprise, surprise, surprise. Guess who the Paulson plan benefits?

Bank of America's top credit strategy analyst says Paulson Debt Plan May Benefit Mostly Goldman, Morgan .
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.


"Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment," Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

Many banks may not participate in the Troubled Asset Relief Program because they haven't had to write down as much assets under accounting rules, meaning decisions to sell into the program would cause them to lose capital, Rosenberg wrote. Investment banks operate "under a mark-to-market accounting model while commercial banks hold assets at cost until realizing a loss (or until they reasonably expect one)," he wrote.

Even without sales by commercial banks and savings-and-loans under the program, the companies may be harmed as the disclosure of prices paid in the troubled-debt auctions force them to ``hasten the pace'' of their own losses, Rosenberg wrote in his report. Banks and insurers mark down certain securities and derivatives to market prices in their earnings reports, avoiding losses on others unless they deem the declines to not be temporary and provisioning against loans as they go bad.

Bank lobbying groups today asked Congress and the U.S. Securities and Exchange Commission to suspend a rule that forces companies to put a price on difficult-to-value assets such as subprime mortgages.

Here is a translation of that last paragraph: Banks are unhappy with the size of their bailout (of which they deserve zero), simply because Goldman and Morgan are getting a bigger bailout (of which they equally deserve zero).

Is it any wonder Paulson wanted his bill ram-rodded through without debate?

1.8 Trillion dollar bailouts just do not go far enough these days. Everyone wants more.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

c.r.rajeev
27 Sep 08, 00:50
economics

your great nation is so great because of your senior citizens.fix them major percentage of bank interest .fix a moderate percentage of interest to young couples,simple percentage to young students who could change the future of your country.thanking you sir.our country also suffering of inflation because of the oil prices.AS AN AGRICULTURAL COUNTRY WE HAVE A MAJOR ROLE IN CONTRIBUTING TO THE WORLD ECONOMY.BY THE REDUCTION OF YOUR DOLLER WE COULD CONTROLL EVERYTHING PERFECTLY.


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