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It's time to banish the word "bailout" from our financial journalism vocabulary.
The press's overuse and misuse of this pejorative, misleading word accounts for part of Washington's difficulty in crafting a plan to stabilize credit markets.
The word has come to connote a sweet deal for fat-cats, a giveaway to undeserving business owners who are largely responsible for their own problems.
No wonder many Americans are livid about what they perceive to be a gift to greedy and foolish Wall Street risk takers. I'd be livid, too -- if this really were a giveaway.
But this plan, like almost all of the recent so-called bailouts, does not represent a sweet deal for stockholders, or, in most cases, bondholders either. Most of these deals would be more accurately labeled a wipeout -- borrowing a colorful word from California surfer jargon in the '60s.
Bailout as rescue
My Merriam Webster's dictionary traces the word "bailout" back as far as 1951, and it defines it as "a rescue from financial distress."
Rescue? Tell that to the shareholders of Bear Stearns, Lehman, AIG, Wachovia, Fannie and Freddie. Their stock value was virtually wiped out by their bailouts.
In the interests of full disclosure, I should tell you that I am -- or was -- a small shareholder in AIG, Wachovia and Freddie, and I continue to hold some other big banks, such as Citi and JPMorganChase. I had lightened up on my positions over the past year, just for diversification, because I had been a little heavy in financial stocks.
But I didn't sell all my bank stocks -- didn't see any reason to. So my remaining positions in AIG, Wachovia and Freddie are virtually worthless today. I'm not whining because I believe this is a risk of stock ownership -- usually a remote risk, but ever-present. I'm holding on to my other bank stocks, and I might just add more shares of well-capitalized banks that will benefit from better times a few years from now.
It's not just common-stock owners who've taken a big hit. Even preferred shareholders in Fannie and Freddie are getting wiped out. Preferred stock is a hybrid stock/bond that is considered safer than common stock. Ironically, bank regulators were once delighted to see these preferred shares in the capital accounts of banks they examine, considering them almost as good as Treasuries. Now the so-called bailout of the F-kids has made this stock virtually worthless, and some small banks are now failing or seeking forced marriages as a result.
POSTED BY: roger h (October 04, 2008 07:03 PM)
the republicans had been running congress for 15 years or more and now they seemed to talk about regulating fannie and freddie for that is farce. we hear the same speech when something seriously happened such as katrina this administration was poorly runned and we taxpayers are taking a hit for it. both parties are full of it. they are both to be blamed for giving these corporations free reign.
POSTED BY: John (October 06, 2008 08:18 AM)
Call it a surge.
POSTED BY: zardoz (October 08, 2008 08:27 PM)
why doesnt congress give the average american the bailout? its our money anyway. and ill disagree with money bags who made the its a risk comment. this is beyond stupidity. we get 600 or 1200 dollars and wall street gets 700 billion? lets split that money which would then be used to infuse our economy...not fattening over paid execs pockets. im disgusted with the whole mess. im a republican but im voting for the other side this year.
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