Felix Salmon ran the latest missive from the Treasury through a readability calculator and says that it scored only 15 out of 100. Funny. Except that I ran the passage through the same calculator he used and it actually produced a score of 0. Ka-ching! As near as I can tell, that means it’s unintelligible even if you have a PhD in finance.
Anyway, the Treasury’s statement is all about further capital injections into banks, and Felix takes his best shot at deciphering it:
I’m not sure I understand this myself, but the government here seems to be coming up with ever-more-obscure forms of capital which it can inject into the banks. We’re relatively familiar with preferred shares, common equity, and warrants to buy common equity; now we must add to that list this new animal: mandatory convertible preferred shares, which had a brief moment in the sun back when banks were raising private capital rather than having to go to the government for bailouts.
….What’s weird is that the government starts off talking about capital being “in the form of mandatory convertible preferred shares”, which implies that those shares are capital, before then going on to say they will “be converted into common equity shares only as needed over time to keep banks in a well-capitalized position” — which implies that they’re not really capital unless and until they convert.
Clear as mud, right? And even the financial press doesn’t seem to agree on what message is being sent by all this gobbledegook. The Wall Street Journal said the Treasury’s statement was designed to “quell fears about the viability of major U.S. banks,” while the New York Times called it an “unexpectedly assertive” statement that “amounted to a roadmap under which the federal government could, if it wants to, demand a major and possibly a controlling stake in systemically important banks like Citigroup and Bank of America.”
So which is it? My take is this: the Obama brain trust understands that they’re almost certainly going to have to nationalize one or two big banks sometime in the next few months. So they need to prepare the ground for that. At the same time, fear of nationalization is bad for everyone, so they’re also doing their best to publicly claim that it’s the farthest thing from their minds and they remain fully dedicated to the idea of keeping the banking system in private hands. That’s a pretty tough tightrope to walk in plain English, so they really have no choice except to resort to Greenspanian gobbledegook. We should probably expect more of this in the future.