Wednesday, October 15, 2008

Capital for the Subprime Banks

This from today’s New York Times:

The Treasury will receive preferred shares that pay a 5 percent dividend, rising to 9 percent after five years. It will get warrants to purchase common shares, equivalent to 15 percent of its initial investment. But the Treasury said it would not exercise its right to vote those common shares.

The terms, officials said, were devised so as not to be punitive. The rising dividend and the warrants are meant to give banks an incentive to raise private capital and buy out the government after a few years.

If you know how subprime mortgages worked, you’ve got to chuckle—except when you remember how they ended.

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