The S-Word

First, I hope it is as beautiful a day where you are as it is here. The eyes rest on flowering trees -- the colors! The sky draws them up to a crystalline blue that goes on forever.

Okay. Snap out of it.

{x-sneeze}

Second, this proposal of the Obama administration strikes me as stupendous -- and in more ways than are initially apparent. [I woke up *deep* -- a reg'lar Think Tank. Actually, I woke up to a barrage of the nimble-tongued Captain Haddock's verbiage. More on our, um, conversation in the minute or so it takes you to read this article.]

U.S. May Convert Banks’ Bailouts to Equity Share

Published: April 19,2009
WASHINGTON — President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.

The Treasury has already negotiated this kind of conversion with Citigroup and has
said it would consider doing the same with other banks, as needed. But now the
administration seems convinced that this maneuver can be used to make up for any
shortfall in capital that the big banks confront in the near term.

Each conversion of this type would force the administration to decide how to handle
its considerable voting rights on a bank’s board.

Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.

Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults.

In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion.

The most immediate expense will come in the next several weeks, when federal bank
regulators complete “stress tests” on the nation’s 19 biggest banks. The tests
are expected to show that at least several major institutions, probably
including Bank of America, need to increase their capital cushions by billions
of dollars each.

The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.

The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more.

“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.”

If that calculation is correct,Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis.

The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.

After the conversion, the Treasury would end up with about 36 percent of Citigroup’s
common shares, which come with full voting rights. That would make the
government Citigroup’s biggest shareholder, effectively nudging the government
one step closer to nationalizing a major bank.

Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid [....]

Where did I leave my helmet? The vociferous bloggers who enjoy scaring themselves and others with the big, bad S-word (Saltimbanco, sidereal, soprano, stellar, sorrow, sideshow, setters, Suzie Q? -- Oh, a psychiatrist would have a field day with such a list!) -- Okay, so strictly speaking, Edmund L. Andrews, the author and unacknowledged second cousin to Julie Andrews, she of potty-mouth fame, prefers the N-word -- which is just silly.

Yeah {cough} -- the vociferous bloggers in double knit polyester pants and stiff yellow polo shirts, through which one can determine the inny-or-outy situation of the navel, hissing away like the nasty snakes that they are! Whoa, Nelly, Retired Educator -- Settle down, there, Champ!

Puh-leeze. Vociferous double-knitted bloggers don't scare me. I just got off the phone with none other than Our Benefactor, in whose Ancestral Manor we are living, and whose generosity we enjoy. I mean it; We really enjoy it.

I was still half-asleep but hearing The Captain's voice booming in my ear brought me to wakefulness in an instant. Believe it or not, he's still hanging out in Africa with the good and faithful Bongi -- apparently, they enjoy regaling one another with Tales of Glory Days. Not that their present endeavors aren't Story Worthy, mind you.

Why am I speaking of The Captain, why of Bongi? It is a question of curses, creativity, catharsis, and, probably, but unconfirmed, the odd crumpet. Well, okay, *strictly* speaking -- something I endeavor to no longer do, in my felicitous retirement -- Bongi's concern is less The Art of Cursing and more the management of the surgical theatre, and saving lives.

Which is not to say that The Captain hasn't saved his share of lives.

You wanna talk Pirates? The mere mention of Captain Haddock makes their blood run cold. No need to have Navy SEALS pop 'em in the head -- no, they abandon ship as well as booty when they hear the Captain approach. One is more likely to hear him first, see him second. (I love the word "booty": A nautical term for treasure; American slang for buttocks...)

So anyway, half-asleep, I put the phone to my lovely cauliflowered left ear (too many years of MMA) to hear: Army of bachi bozouks, why are you still abed?

Oh, Captain, My Captain, is that you? mumbled lazy-ass me.

In the name of billions of blind whales -- who else would call on the Emergency Red Phone in the Visitor's Wing of Marlinspike Hall? Sub-products of ectoplasm, who's been using my minutes? Hairy cucumbers! Stinking goat-bearded dolphins!

He was on a roll.

Toward the end of our rollicking conversation, he inquired as to my reaction to Obama's performance, these first hundred or so days.

"Courageous and Bold," I proffered.

"Christ of a Commie Bleating Bolshevik," he countered, in a scary **whisper**.

"Whatever floats your boat, Captain," I hissed.

"Ship. Ship. Whatever floats my God-damned SHIP!"

Note the day and time. Even Captain Haddock becomes crass when discussing politics.

I think shifting ownership from common cash to shares is... very American, smart, and -- what I like most -- it drastically decreases the opportunity for graft chez some of these smarmy corporations.

I am going back to bed. Clouds are moving in. We may have to find a new place to live.

Go GOOG.