If you’re American and you’re reading this, you now own bank stocks!
Long rumored and finally spelled out: Hammerin’ Hank Paulson is going to go ahead and use part of that $700 billion we gave him to do some direct investments in banks (see Jason’s post below).
Know what? This actually may increase liquidity. Thanks to capital ratios, a $10 billion dollar investment in banks can be used to create $100 billion dollars in credit. Best case scenario – the banks get the capital injection, lend it out, credit markets unfreeze, bank shares go up, and Treasury actually makes a few bucks on its investment. Worst case? Some or all of the following: banks choose to sit on the cash or lend it out incompetently, banks go bk after all, credit markets stay frozen, Treasury loses its investment.
(I got an email today from Erin L., who suggested Dunecat should make an appearance on LOLFed, and I liked the idea, so here you go.)
I don’t necessarily think we are going to rally on Monday, because I am sure a lot of people who have negligible understanding of or interest in the markets are going to look at their portfolios this weekend and go OMGWTF and try to unload early next week. But, if Treasury can actually get cash flowing, at least in the near term you can probably trust that this market is going to be propped up off these lows. And if it isn’t they’ll do something else until it finally is. It’s been a bad week, but there’s still enough store brand macaroni and cheese to go around for all of us, ok? Nobody panic.