Paging Karl Marx

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On my initial scan through the news the morning I read that the Treasury is planning to convert some of its preferred shares (purchased under the original TARP bailout for distressed banks) into common stock.  It’s supposed to be a way for the feds to stretch their bailout dollars because, according the New York Times, “The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.”

That didn’t seem to make any sense, but hey, what do I know about high finance?  And then I got annoyed by California’s latest ballot initiative, and then intrigued by the Jane Harman wiretap, and forgot all about it.

But I guess I’m not crazy after all.  (Not totally crazy, anyway.)  James Kwak, who knows a thing or two about this, says the whole thing sounds ridiculous.  Here’s Kwak highly condensed:

If you don’t give a bank any more money, it doesn’t have any more money. By converting preferred into common, you haven’t changed the chances of the bank going bankrupt….If you accept the idea that converting preferred into common creates new capital, then you are implying that those preferred shares weren’t capital in the first place….Tangible common equity and Tier 1 capital are just two ways of measuring the health of a bank. Taking money that wasn’t TCE and calling it TCE doesn’t serve any economic purpose.

Right.  Back when the original TARP bailout money was handed out, the preferred shares were very deliberately and very conspicuously called Tier 1 capital.  That’s the bestest capital there is, and converting it into common stock doesn’t make it into super-duper Tier 1.  It does get the banks off the hook for paying dividends on the stock, but since most of these banks are (or claim to be) extremely cash flow positive, that shouldn’t be their biggest worry at the moment.

So….I dunno.  This is weird.  Might there be text hidden in the conversion contracts that releases banks from those horrible restraints on executive pay that they hate so much?  Or is there more to this than meets the eye?  Stay tuned.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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