Among the companies featured here are J.P. Morgan Chase (JPM), Citigroup (C), Morgan Stanley (MS), Bank of America (BAC)?and Goldman Sachs (GS).
Finally there is some good news on the world financial scene. Over the weekend, the finance ministers of the leading economies in the world basically agreed to follow the plan developed by Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling to directly inject cash into the balance sheets of the major banks and take major equity stakes.
The U.K. government will now own about 60% of the Royal Bank of Scotland (RBS) and about 40% of the combined Lloyds (LYG) and HBOS (HBOS).
The second element of the plan was to guarantee loans between banks. This should free up interbank lending and in turn free up lending to the real economy. Think of it this way -- the first part of the plan fixes the engine of the economy, the second part fixes the transmission. The European Union is following suit, and from his comments last week it is clear that Henry Paulson has come to his senses and will be doing something similar here with the $700 billion bailout package.
The direct equity injection plan hits the key objectives of any bailout plan. It stabilizes the banking system. Banks with solid balance sheets are capable of lending to credit-worthy corporations. The key problem with the banks has been that they have too much leverage, and as they sold off assets to de-lever, the prices of those assets fell.? Since everyone was doing so at the same time, and leverage actually increased as a result.
Direct injection of capital is literally an order of magnitude (i.e. better than 10x) than buying assets on a per dollar basis at fixing bank balance sheets. Since the government will own preferred stock, the taxpayers will share in the upside of the recovery, and there is a very good chance that over the long run (say five years) we will end up making money out of the deal.
The prospects for taxpayers actually making money from the original bailout plan were extremely remote (although not all $700 billion would have been lost, a good chunk of it probably would have been).
