Wednesday, 24 September 2008

The US bail-out fiasco continues

Two US bail-out stories from the Financial Times caught my eye today.

The first was report that the cost of the Paulson plan is impossible to estimate. Peter Orszag, head of the Congressional Budget Office, told the house budget committee that:

"The secretary (Paulson) would have the authority to purchase virtually any asset, at any price, and sell it at any future date; the lack of specificity regarding how that authority would be implemented makes it impossible at this point to provide a quantitative analysis of the net cost to the federal government."

That just about sums up this half-baked bank bailout.

The second story concerned Lehman. I know we were all desperately concerned about those unemployed bankers. What were they going to do, now that the gravy train had run into a ravine.

There really was no need to worry. Things will turn out just fine. For example, the Japanese bank, Nomura has just purchased Lehman's European and Middle East operations for $2. (If I may digress: I just looked into my desk drawer and I still have a five buck note from my last holiday in the states. Why wasn't I allowed to put in a bid? In terms of creditor value, doesn't $5 offer a better deal than $2?)

That is a big hit there for the shareholders, but the employees will do a little better. Normura is going to set up a $1 billion bonus pool that it will share out to just 2,500 employees. That is a cool $400,000 each.

Taken together, these two reveal the essence of modern US banking. Paulson goes to legislators and produces a financial sector bailout plan that essentially has no price tag. At the same time, employees of a failed bank end up with a $400,000 payout. Privatize profit and socialize losses; it is a well worn line, but it perfectly sums up the situation.

1 comment:

Anonymous said...

I'm against Paulson robbing the taxpayer, but I don't see why anyone should be telling Nomura how to spend it's own money except Nomura's own shareholders.