2008-09-29 Weekly Credit Graph Packet

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1. OT, but I thought I’d just post in the latest thread. I’ve heard a lot in all the discussions around the treasury plan about the “need to recapitalize the banks”. It looks like Paulson want to do it by simply overpaying for assets, while others want to do by the Govt paying for preferred shares (so it can “make a profit”, whatever that means for a currency issuer). The question I have is, given adequte liquidity in the system why should anyone care about the capital of, say, Citibank? Say a whole bunch of banks fail – as long as the depositors are covered, they aren’t out any money, and the remaining banks can always lend as much as necessary to any creditworthy borrower. The only ones who need to worry about the bank’s capital are the shareholders – and I don’t see the public purpose in saving them.

   In fact, it seems to me you could make a much better case for “recapitalizing” the automakers, who have a large investment in real, physical capital that could be threatened if they go out of business. But bank failures and subsequent rejiggering of deposits and employees from one nameplate to another don’t really cost the rest of much of anything. Am I at all right in this?

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