Here’s my proposal for banks that are presumably capital constrained:
Offer borrowers a package deal:
The borrower agrees to buy new bank VCP (variably convertible preferred) stock equal to, say, 10% of their proposed borrowings. This creates ‘balance sheet’ for the bank which then has the new ‘room’ to make the loan and then some. (Banks generally have 8% target capital ratios.)
The VCP functions as a ‘first loss piece’ for the bank as well.
Terms of the VCP might include an interest rate equal to the loan rate, and a variable conversion ratio designed to give the borrower all his funds back if he doesn’t default.
The VCP non-dilutive to the holders of common shares.
This VCP proposal can free up and create new balance sheet and raise capital as it services borrowing desires.
Feel free to forward this to everyone you know in banking.
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All my banker friends in florida say they don’t care what monetary tricks you come up with Warren, the ethical ones say they are not going to lend because the illegal aliens are walking away from their miami condo loans and truck loans and going back to south america cause they don’t like the USA anymore.
I just don’t understand why you keep focusing on continually re-arraging the deck chairs on the titanic – this is just useless busywork wasting your life and everyone elses. Until you change the government you and I an everyone else exist within – all your monetary memes don’t accomplish much in the big picture – no matter what changes you make. No matter how much you reshuffle the deck chairs on the titanic – the same corrupt elitist is still up in the captains chair heading for that iceberg that sinks us all – until that captain gets replaced – and not by another captain that will be corrupted as well – but by dispersing his power – will we have any real change in this world.
Its hard to see, much less embrace a solution if you see the glass half-empty. Also, a bank that makes the majority of its loans to illegal aliens should probably cease to exist anyway…
Is there any precedent for doing this?
It’s interesting in that your asking the borrower to essentially “lend” a down payment to the bank. The bank gets capital for new loans and the borrower gets interest on the VCP.
Would you need to offer some sort of deposit insurance on the VCP to protect the borrower’s interest?
rich,
no.
yes.
no. just a cost of getting the loan. lots of banks do require ‘compensating balances’ but they are now insured up to $250,000.