When Your Investor Owns the Marketplace

One reader has commented that I seem to be going on a lot of tirades about the economy and the bailout and that this blog has seemingly taken a political bent. That comment is well taken and so I will post this final post about the bailout and the excessive governmental tampering with the free markets now. I promise to leave the topic alone after today and move on.

So now that it appears that the economy has bottomed, banks are paying back their TARP loans. This is good news but it seems that now banks are negotiating with the government to buy back the warrants owned by the government. These negotiations are apparently taking longer than necessary due to the government wanting a better price for the warrants.

I find this both awesome and disturbing. First let's start with disturbing. This is disturbing because the Fed essentially forced these banks to take the TARP funds even when the banks did not want them. Now, when the banks are trying to get out of TARP, the government is essentially forcing them to pay inflated prices to buy back the warrants. This is the ultimate form of federal manipulation in a transaction involving a public company. It is unacceptable and simply not fair to the shareholders of those companies.

Now on the other hand this is quite an awesome phenomenon from an investor's standpoint. Essentially, this investor (the government) has been able to force a transaction on a company that the company must do in order to survive. Then when that company has clearly demonstrated that it is going to survive and not become insolvent, the investor is trying to milk all it can from the company. It reminds me of the old days of hostile takeovers when raider firms would take over companies and strip them of all of their value.

What I don't understand is why the government would try and milk those same companies that they tried to prop up. Don't they want the banks to succeed financially and don't they want to restore shareholder value?

This may be the ultimate grind down or it may simply be another securities violation implemented by the government who essentially owns the marketplace. Either way, the backasswardness of it all hasn't seem to have caught the attention of anyone in the financial media. Hopefully, the buybacks of these warrants and closure of TARP marks the end of our government's manipulative intervention in the marketplace.

Comments

[Larry Cheng]

Great post - I personally think it's more than fair to talk about politics or whatever is on your mind on the blog. That's what makes it interesting. And, I think your observations here are insightful. Hopefully you won't stop blogging about politics cold turkey.