Paulson Told Bankers They Had No Choice, Really.

Long before the current contingent arrived from Chicago, Washington D.C. was already a gangsta land. Or it sure seems that way. According to Bloomberg.com article, "Paulson Told Bankers to Take U.S. Taxpayer Aid or Be 'Exposed'",

"Former Treasury Secretary Henry Paulson, saying nine U.S. banks were “central to any solution” of the credit crisis, told their leaders to take government aid or be forced to by regulators, according to a memo prepared for an October meeting."

That October meeting took place on Monday October 13, 2008. The memo was obtained by Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request.

The stock market went off the cliff on Wednesday October 1, the very day that Senate passed the Emergency Economic Stabilization Act of 2008, a.k.a. Bailout of Financial Institutions. It kept falling, and on Friday October 10 the market hit the then-bottom of 7,883 on Dow Jones Industrial Average.

In that panic situation, Paulson told the bankers:

"“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance,” Paulson’s one-page list of talking points for the session with the banks’ chief executives said. “We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”

"Three and a half hours after the meeting was scheduled to begin, Paulson had obtained the bankers’ signatures on half-page forms along with the handwritten amount of the federal government’s investment, according to the documents. He announced the actions publicly the next day."

I read before that Paulson on that day told the bankers they wouldn't be able to leave the room until they sign the form. I always wondered why none of them took up an offer, so to speak, and stayed on. Wells Fargo CEO was reported to be vehemently opposing the idea, saying his bank did not want any government money.

Now I know. Even if they said no, Treasury would force-feed them anyway. Head I win, tail you lose.

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Wells Fargo Up 20% on News of Capital Need

Go figure. According to various news sources, Wells Fargo has been told by regulators to raise capital after stress test.

Right before the news hit the wire at about 12:30 EST, Wells Fargo (WFC) was trading about $21.40. It immediately dipped, then started ramping up. With 10 minutes left to trade, WFC is currently at $23.63, slightly off the day's high of $23.89.

Other "troubled" banks are flying, too.

• Bank of America (BAC): up 16%
• Citigroup (C): up 7.7%
• Regional Financial (RF): up 22%
• Fifth Third Bankcorp (FITB): up 22%

The number of banks that may be required to increase capital is now supposedly 14, out of 19 tested, as the stress test results continue to dribble out before the "official" announcement on Thursday.

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