So is that not a bailout?
It's not a bailout.
They will sell the bank and take and hold the Bonds to get the money back that they will forward to the depositors so the depositors can withdraw/transfer their funds.
It is absolutely a bail out IMO. Not only that but this is a terrible precedent.
We have just crossed the Rubicon. FDIC no longer applies and the US government is now guaranteeing all deposits of any size. Too big to fail. Systemically important.
No taxpayer funds will be used........HOGWASH. They claim the banks will pay more fees up front going forward. Who do you think actually pays those fees . CUSTOMERS. You will pay higher mortgage rates or receive lower interest rates on savings. How about overdraft protection ? Credit card fees and rates ?
But here is the kicker. The Fed the Treasury and FDIC will make loans available to banks that need liquidity. Those banks must put up collateral in the form of Agency MBS or treasuries. The bonds received as collateral will:"They'll have to pledge high-quality collateral such as Treasuries, agency debt and mortgage-backed securities. Notably, that collateral will be [b]valued at par, not mark to market
If you don't understand what that means ( and I think they are hoping that you don't) here is a short explanation.
PAR value of a bond is the same as FACE value. A bond with a $1000 face value is at par when its market value is at $1000.
But these banks' bonds will not be "marked to market" as all other financial instruments are on a daily basis.
In other words.......A needy bank can go to the Fed or treasury an borrow a million dollars. The bank hands over a million dollars FACE VALUE bonds as collateral.
The problem is..........on the open market those bonds .....if marked to market may only be worth $850,000.
Is the missing 150,000 a gift or what ?
Who is the giver of that gift ?
I'll give you one guess.
Tell me again how this isn't a bail out.
But......IMO the worst part is the precedent it sets.
Now banking risk is completely socialized.
The banks can take bigger, imprudent risks. If they make a bunch of money that's great. But if they lose .........that's ok too because we will all pick up the tab.
Individualize profits but socialize losses.
Shameful ! But I'm not surprised