Tuesday, October 6, 2009

The priviledged class, bondholders (C)

Just another example of "Grand Theft Taxpayer."

Below is a great video with Christopher Whalen of Institutional Risk Analytics, on one of the most important topics around. Another vocal and very intelligent voice on the subject is John Hussman, of Hussman funds.

Whalen suggests that the best way to restructure a bank like Citigroup (C) is to bring bondholders to the table and make them exchange debt for equity. It would increase the bank's equity cushion to absorb losses, and it would force bondholders to share in stockholders pain, instead of benefit from the taxpayer bailout:

Below, I've tried to put it into "chart-perspective" -->> there's just a sliver of equity at some of these banks, that must absorb the inevitable writedowns of various bad loans and investments on the balance sheet. Instead of making the taxpayer buy preferred shares to keep the equity at a sustainable level, we should be requiring bondholders to take a hit and or convert some of their holdings to equity.

And here's Citi's explanation of its tangible equity.

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