Car-Finance Firms Want Access to Fed’s Commercial Paper Program
Automobile-finance companies pushed hard to get in on the government’s $700 billion financial rescue plan. Now, with the industry’s troubles expected to deepen, they are exploring further moves, including help from the Federal Reserve.
The plan outlined by the U.S. central bank Tuesday to effectively lend to companies to fund day-to-day operations will likely not include most auto lenders. That’s because the plan, which would involve Fed purchases of short-term debt known as commercial paper, calls for lending to companies with higher credit ratings.
Yes, we must have limits.
Tighter credit equals fewer sales. This remains me of the old saying (that is true during a credit crunch): Bankers only lend money to people who don’t need it.
..and governments to those who don’t want it
To make the point more clearly: the public at large was taken not just once, but twice, It was hosed in the unduly generous terms given to nine banks (the lack of writedown of assets to realistic values, the failure to wipe out current equity holders and subject debt holders to a haircut, the merely symbolic limits on executive pay). But it also got a less obvious shellacking in the way legal and regulatory processes were trampled. Given the Treasury and Fed’s combined banking authority, and the dubious valuations of many types of assets on these firms’ books, the powers that be could easily have compelled any bank to accept a much less favorable deal, or frankly any deal they wanted them to take. And it would not have taken all that much additional effort (although it might have taken some planning, which is a persistent shortcoming of this Administration).
But Paulson instead went through a bizarre, public exercise in sham corecion (and real sidestepping of even minimal normal forms) so as to avoid a candid discussion of how lousy the banks’ balance sheets really were. And the ruse, like the TARP itself, was another demonstration that the Treasury considers itself to be outside the law.
Crime in a socialist economy already?
So preferred ‘shares’ pay 5%. Banks can buy back the stocks at par value, which means the price the Treasury is paying for them now. That means if the stock goes up we get no upside, but if it goes down we’re behind the lenders and lawyers for money. It’s a loan, and a junior loan at that.
Well, whadda ya know?
Now that’s a crisis!