Stock Injection in the Paulson Plan…

October 5, 2008

In this lively NPR podcast (see player under photo of archer) Adam Davidson discusses the Paulson Plan with, host, Ira Glass in response to a plea from a listener:  ‘Please help me understand if I should support the bailout’.

They being by discussing the problem of pricing the toxic mortgage backed assets for sale to the government.  The argument is that intervention engenders more uncertainty in the markets since it is not known how the government will determine prices.

But soon they switch to to a discussion of a plan called a ‘stock injection plan’ contrasting it to the Paulson Plan.  Instead of just giving 700$ billion to the banks in exchange for lousy securities, stock injection means that the government would receive preferred stock: the tax payer would be the last ones to lose money if the value of the banks declined.  According to the informal poll by these journalists, this is the option overwhelmingly supported by economists.

This smells of socialism to conservative Republicans, but it also rubs banks the wrong way.  They suggest that thousands of lobbyists have been hired to refute the idea of a stock injection plan.

The kicker is that according to these commentators, there is subtle language in the bills that passed in both the house and senate that makes stock injection as an option that can be employed at the discretion of the treasury secretary.

To see for yourself, the full senate bill can be viewed here (*Note the deep expression of disapproval from ‘constitutent’ comments on this site).  NPR host Laura Conway has identified the following as the relevant passage:

IN GENERAL.The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives from the financial institution from which such assets are to be purchased

1. in the case of a financial institution, the securities of which are traded on a national securities exchange, a warrant giving the right to the Secretary to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which, the Secretary agrees not to exercise voting power, as the Secretary determines appropriate; or

2.in the case of any financial institution other than one described in subparagraph (A), a warrant for common or preferred stock, or a senior debt instrument from such financial institution, as described in paragraph (2)(C).

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7 Responses to “Stock Injection in the Paulson Plan…”

  1. Alex Mac Donald Says:

    Adam Davidson does NOT “that thousands of lobbyists have been hired to refute the idea of a stock injection plan.” He asserts that the banking industry has hundreds of lobbying in Washington and that they deploy “thousands of lobbyist” to promote the industry’s interests. He also asserts — asserts — that the lobbyists have been at work in since Paulson launched his plan. Try and get it straight. Your credibility is on the line.

  2. Alex Mac Donald Says:

    Adam Davidson does NOT suggest “that thousands of lobbyists have been hired to refute the idea of a stock injection plan.” He asserts that the banking industry has hundreds of lobbying firms in Washington and that they deploy “thousands of lobbyists” to promote the industry’s interests. He also asserts — asserts — that the lobbyists have been at work since Paulson launched his plan. Try and get it straight. Your credibility is on the line.

  3. marthapoon Says:

    The exact quote from the broadcast is:

    “I talked to a bank lobbyist. He told me that there are over six hundred professional lobbying groups, thousands of people are working hard to promote the Paulson plan and to weaken any stock injection plan.” [8:57-9:11]

    If we consider the word ‘lobbyist’ to indicate individuals who work in the lobbying industry, then what was written would be a accurate representation of source.

  4. Bill Says:

    Paulson is moving to fast-track the reverse auction that will shift worthless assets from Wall Street firms to the government. Missing is any consideration of the stock-injection plan (provided for in the bill), one that most economists believe would better protect taxpayers, but also one the banking industry fears the most. If Paulson is successful, he’ll never have to pay for another country-club membership as long as he lives. Don’t buy the ‘socialism’ rhetoric. DEMAND (!) a debate from your congressional leaders on the stock-injection plan. The next 15-45 days will swing hundreds of billions one way or another…

  5. Gabriel Says:

    I heard this broadcast this weekend and got the sense that we must indeed “demand” more information and debate regarding the stock-injection plan. How can we spread the word, what is the best way to pressure our legislators?

  6. yarek Says:

    When I heard the NPR broadcast, I was also interested in finding out more about the stock injection plan. However, a Google search turned up next to nothing about this plan, or anything like it (this blog was one of the few hits)- mostly references to the story on This American Life. That’s when I came across a story in the NY Times that included a description of just such a plan, but under a different name – “direct recapitalization”. So look for that term.

  7. Vigdor Says:

    The whole stock injection endeavor is the right way to go. The NPR shows are fabulous and so informative. There’s two of them so far and a little snip from yesterday. There’s another site http://www.StockInjectionPlan.org that has 3 or 4 kinda chapters on the bailout and the stock injection plan. Very good. Stay tuned there’s so much that is and will be happening.


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