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SIFMA Conference Call with US Treasury
Mussolini-Style Corporatism in Action: Treasury Conference Call on Bailout Bill to Analysts (Updated)
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MEMORANDUM
TO: SIFMA Government Reps Committee
FR: SIFMA Washington Office
DA: September 28, 2008
RE: Conference Call w. Treasury / 9:00PM TONIGHT
At 9:00pm tonight, Sunday, September 28th, there will be a call with Treasury officials to discuss the Troubled Asset Recovery Plan. This call is specifically for analysts. Please distribute ASAP to analysts in your firm who might be interested in participating. We have also distributed this call notice through various SIFMA Committees to solicit analyst participation.
Please find the conference call information below:
Date: Sunday, September 28th
Time: 9:00PM ET
TO: SIFMA Government Reps Committee
FR: SIFMA Washington Office
DA: September 28, 2008
RE: Conference Call w. Treasury / 9:00PM TONIGHT
At 9:00pm tonight, Sunday, September 28th, there will be a call with Treasury officials to discuss the Troubled Asset Recovery Plan. This call is specifically for analysts. Please distribute ASAP to analysts in your firm who might be interested in participating. We have also distributed this call notice through various SIFMA Committees to solicit analyst participation.
Please find the conference call information below:
Date: Sunday, September 28th
Time: 9:00PM ET
some items jump out:
1. The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,
2. However, they do not plan any action immediately, will wait a couple of weeks. They want to focus their efforts on stronger companies but also made noise about protecting the financial system. This, by the way, is the Japanese convoy system all over.
3. There seemed to be a lot of tap dancing about what price they will pay for assets and no straight answer about their policy on warrants. They did say that if the amount sold was greater than $100 million, they would take warrants. FYI, the current draft allows them to pay up to the price at which the assets were initially booked (yikes) . I wonder if this is obfuscation, if they have an idea of what the plan to do but will not admit it in any public forum.
4. As the person who listened to the call stressed, DealBreaker wasn't clear on the bifurcated process. If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. That is consistent with Paulson's position during the negotiations.
5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes. More detail on that point, but I don't need more detail to get the drift of the gist.
Further below are the notes, admittedly somewhat cryptic at points, but hopefully helpful. But if you have time, listen to the download. Be warned I may revise and add to the post once I have done so.
Update 12:30 AM: Have queued up recording of conference call but not yet listened to it. But reader and sometime contributor Lune provides a useful take. Hoisted from comments:
1) If even the Treasury is saying tranching is a formality, then it really is nothing. Not sure why Dems fought so hard for a fig leaf.
2) Waiting a couple of weeks because no one has any idea when or where the next bomb will blow up. In other words, all their doomsday scenarios about Black Monday were B.S. They screamed the check had to be written by Monday, but now they're saying they actually have a few weeks before they need to cash it. Plus, this will allow them to "seek guidance" from GS, JPM, and other selfless public servants about where the money should be funneled.
3. The tap dancing is because they don't want it to get out that they'll be giving a sweetheart deal. The public won't be following each individual transaction to see exactly what price is being paid. So ridiculously overpriced asset sales can be hidden in the details, and by the time some reporter (or blogger :-) combs through and analyzes the transactions, the deed will have been done. But if Paulson makes a statement that assets will be bought at par before the bailout's even begun, that will be reported and might kill the deal.
4. In other words, we need to sweeten the pot to encourage banks to come "voluntarily". Pardon my ignorance, but why the hell should we be begging banks to borrow from us? I thought a bailout should be the absolute last option for a bank. I.e., it should be so unpalatable, so unprofitable for a bank and its executives that they exhaust every private means of survival before coming for their public "reaming". I wonder if foreclosed homeowners would rate their foreclosure process as "user friendly".
5. Of course the exec comp provisions are a joke. Who do you think is going to be hiring all those banking cmte staffers and newly retired congresspeople next year during the inevitable post-election turnover? Do you really think they're going to vote to limit their salaries? Remember that for lots of people on the Hill (including elected reps), govt work is merely time you spend accumulating credentials in preparation for your real life's work in the vastly richer private world.
Taxpayer losses: "golly, let's just pray to Jesus and hope he'll make sure that in a few years our country won't be bankrupt."
Oversight: "let's appoint a committee which will file toothless reports that no one will ever read".
I'm glad to see that while much time was spent in Exec comp. and tranching kabuki theater, the real points of protection of taxpayer losses and implementation of new regulation seem to be afterthoughts.
The notes on the call per our helpful anonymous reader (and former investment banker, it turns out):
"Draft bill is very positive for both markets and our companies"
Much explanation of Executive Comp
Residential and commercial mortgages. But very importantly, it can be any asset.
Excited about ability to guarantee assets in exchange for a guarantee fee.
Sought as much authority and as much flexibility as possible.
Eligibility: as broad participation by institutions as possible. The
more participation, the more effective it will be. Want banks of all
sizes or any financial institution that has a meaningful presence in
the US to be interested and enthusiastic.
Purpose is to help private sector clean up their balance sheets.
Highest priority: make sure it works, will attract companies to
participate. Warrants and exec comp. were very highly negotiated.
1. The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,
2. However, they do not plan any action immediately, will wait a couple of weeks. They want to focus their efforts on stronger companies but also made noise about protecting the financial system. This, by the way, is the Japanese convoy system all over.
3. There seemed to be a lot of tap dancing about what price they will pay for assets and no straight answer about their policy on warrants. They did say that if the amount sold was greater than $100 million, they would take warrants. FYI, the current draft allows them to pay up to the price at which the assets were initially booked (yikes) . I wonder if this is obfuscation, if they have an idea of what the plan to do but will not admit it in any public forum.
4. As the person who listened to the call stressed, DealBreaker wasn't clear on the bifurcated process. If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. That is consistent with Paulson's position during the negotiations.
5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes. More detail on that point, but I don't need more detail to get the drift of the gist.
Further below are the notes, admittedly somewhat cryptic at points, but hopefully helpful. But if you have time, listen to the download. Be warned I may revise and add to the post once I have done so.
Update 12:30 AM: Have queued up recording of conference call but not yet listened to it. But reader and sometime contributor Lune provides a useful take. Hoisted from comments:
1) If even the Treasury is saying tranching is a formality, then it really is nothing. Not sure why Dems fought so hard for a fig leaf.
2) Waiting a couple of weeks because no one has any idea when or where the next bomb will blow up. In other words, all their doomsday scenarios about Black Monday were B.S. They screamed the check had to be written by Monday, but now they're saying they actually have a few weeks before they need to cash it. Plus, this will allow them to "seek guidance" from GS, JPM, and other selfless public servants about where the money should be funneled.
3. The tap dancing is because they don't want it to get out that they'll be giving a sweetheart deal. The public won't be following each individual transaction to see exactly what price is being paid. So ridiculously overpriced asset sales can be hidden in the details, and by the time some reporter (or blogger :-) combs through and analyzes the transactions, the deed will have been done. But if Paulson makes a statement that assets will be bought at par before the bailout's even begun, that will be reported and might kill the deal.
4. In other words, we need to sweeten the pot to encourage banks to come "voluntarily". Pardon my ignorance, but why the hell should we be begging banks to borrow from us? I thought a bailout should be the absolute last option for a bank. I.e., it should be so unpalatable, so unprofitable for a bank and its executives that they exhaust every private means of survival before coming for their public "reaming". I wonder if foreclosed homeowners would rate their foreclosure process as "user friendly".
5. Of course the exec comp provisions are a joke. Who do you think is going to be hiring all those banking cmte staffers and newly retired congresspeople next year during the inevitable post-election turnover? Do you really think they're going to vote to limit their salaries? Remember that for lots of people on the Hill (including elected reps), govt work is merely time you spend accumulating credentials in preparation for your real life's work in the vastly richer private world.
Taxpayer losses: "golly, let's just pray to Jesus and hope he'll make sure that in a few years our country won't be bankrupt."
Oversight: "let's appoint a committee which will file toothless reports that no one will ever read".
I'm glad to see that while much time was spent in Exec comp. and tranching kabuki theater, the real points of protection of taxpayer losses and implementation of new regulation seem to be afterthoughts.
The notes on the call per our helpful anonymous reader (and former investment banker, it turns out):
"Draft bill is very positive for both markets and our companies"
Much explanation of Executive Comp
Residential and commercial mortgages. But very importantly, it can be any asset.
Excited about ability to guarantee assets in exchange for a guarantee fee.
Sought as much authority and as much flexibility as possible.
Eligibility: as broad participation by institutions as possible. The
more participation, the more effective it will be. Want banks of all
sizes or any financial institution that has a meaningful presence in
the US to be interested and enthusiastic.
Purpose is to help private sector clean up their balance sheets.
Highest priority: make sure it works, will attract companies to
participate. Warrants and exec comp. were very highly negotiated.
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