Saturday, October 4, 2008

Glimmer of a Free Market!

Wells Fargo has now offered to buy Wachovia without any government assistance and for about 7 times the value of the deal in which the government and Citigroup made to take it over.

Some excerpts:

Citigroup Inc.'s takeover of Wachovia Corp. was torpedoed on Friday when San Francisco-based Wells Fargo & Co. agreed to pay $15.4 billion to buy Wachovia.
Wells Fargo's offer upended the government's hastily arranged effort last weekend to match New York-based Citigroup with Wachovia of Charlotte, N.C. -- a federal effort to prevent the bank from joining the growing ranks of failed financial institutions.
The Wells Fargo offer provides a glimmer of support for the fundamental value of troubled U.S. banks: It signals that there is still a market, albeit limited, for private takeovers of these institutions, one that does not place taxpayer dollars at risk. It is also significant because the new buyer, unlike Citigroup, asks for no government assistance.
So our tax dollars nearly went to Citgroup to help them purchase an asset worth $15 billion dollars for just $2 billion. Would have been a sweet deal for Citigroup, huh. Simply stunning.


msheeley said...

yes, you're right. This is a sweet deal. The US government almost purchased and asset worth $15 billion for about $2 billion. That would have been a sweet deal for the US people. Just think there is the potential for the US people to profit on $700B worth of similar deals. Its about time we started to invest in our own country.

mpv said...

As I read it Citigroup would keep the assets while the government absorb the losses (over some amount) that Citigroup incurs from them. The government would have received major equity in Citigroup though so your point still holds.

My feelings on this however are irrespective to whether or not the deals turn a profit for the tax payer (which they very well may).

These bailouts are supposedly government intervention of last resort but now in this case we see there was an alternative.

I just don't belief this should be covered under the roles and responsibilities of government.

In the long run we are better off with a free market where the only the strong survive.

msheeley said...

Okay putting the potential for our country to profit off of investing in our own economy aside, the idea that the government should not take part is a bit one sided. The US government did its part to cause the problem in the first place (see
How Government Stoked the Mania) they should step in and try to fix the problem too.

In a perfect world, free markets work. But when politicians who are for more government regulations gain popularity from bad situations cause by government regulations, there is no hope in site for truly free markets.