1) Anyone stupid enough to think the @federalreserve has “solved” the banking problem should focus their binoculars. The approach reminds me of the failed MLEC which I described as “May Losses Extend Continuously”. @PatrickMcHenry @FinancialCmte @FSCDems #SIVB #SBNY… twitter.com/i/web/status/1…
2) A proper program would have taken the underwater long dated HTM at a MTM. Then @federalreserve should have required banks to cut dividends & buybacks & raise capital within that year. The @USTreasury should have taken Sr. Pref retire-able upon full capitalization of the… twitter.com/i/web/status/1…
3) Taking HTM bonds from banks at par, for a year, without taking Sr. Pref & explicitly requiring banks to raise capital within 12 months exacerbates moral hazard, transfers future risk to the DIF & taxpayers & ties the hands of the Central Bank vis a vis monetary policy.
4) Without the “stick” of warrants or Sr. pref there is no way to “force” banks to raise capital. Remember, Sec. Paulson - through Bob Steel - told Freddie to raise capital in 2005. The company refused to take dilution citing ‘market conditions’. We know how that ended (it… twitter.com/i/web/status/1…
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