Michael S. Rozeff

LRC Blog

October 15, 2008

From the Wall Street Journal: “As the meeting neared a close, each banker was handed a term sheet detailing how the government would take stakes valued at a combined $125 billion in their banks, and impose new restrictions on executive pay and dividend policies.

A d v e r t i s e m e n t



“The participants, among the nation’s best deal makers, were in a peculiar position. They weren’t allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.”

If they refused, they could expect little government help and possibly much harm down the road. They signed.

The U.S. officials speciously argued “the plan represented a good deal for the banks: The government would be buying preferred shares, and thus wouldn’t dilute their common shareholders.” What utter nonsense. The preferred cut comes off the top. It has priority over the common, which is why it’s called preferred stock. That is why Buffett took preferred stock from GE and GS.

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