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Posts Tagged ‘ bailout ’

Rethinking: Banks, Bailouts, and Taxes

Since the latter part of 2007, the financial world has been in one of the worst crises of the last half century. Just a cursory look at news headlines around the world reveals a telling and stress-inducing story.

With these articles, the spotlight remains squarely on financial institutions as we are continually reminded of failing and nearly failing banks needing “bailouts”. Unfortunately, we are too often only exposed to part of the story.


A Dose of Humor

Clay Bennett


Harris Simmons

As the nation’s credit crisis has continued to make headlines, the United States Department of Treasury has continued to develop new tools to engender confidence and strengthen liquidity in the financial system. A major new element of the government’s response is the Capital Purchase Plan, an element of the Emergency Economic Stabilization Act recently passed by Congress, by which up to $250 billion is being invested in healthy banks that form the backbone of our economy. This new capital is being provided in the form of senior preferred stock, with a coupon rate of 5 percent for the first five years, after which the rate increases to 9 percent. Warrants to purchase common stock at current prices, in an amount equal to 15 percent of the total investment, are also provided to the government. The structure of the program virtually ensures that these taxpayer funds will not constitute a “bailout,” but rather an investment that will be fully repaid by the many banks receiving this investment.