Why PIMCO Would Overpay For Bank Assets

Before the rest of us had time to print out our applications, Blackrock and PIMCO quickly announced that they’d be participating in the new Treasury scheme to prop up the banks. They’re obviously in quite a rush.

Stephen Randy Waldman at Interfluidity has a great post on how these investors may end up taking losses on their investments in bank assets, screwing over taxpayers, while providing a windfall for the banks.

We’ll skip the joke, but tell you the punchline:

Why would PIMROCK go along with this? Because they feel it is their patriotic duty to work with the government for the good of the financial system, even if that involves accepting some sacrifices. And because they hold $100B in J.P. Citi of America bonds, and they’ve received assurances that if we can get the nation out of the financial pickle it’s in, there will be no haircuts on those bonds. “Shaking hands with the government” means that nothing ever has to be put in writing.

Welcome to America, 2009. Change we can believe in. Read the whole thing >

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