Financial shares took another sharp hit today, on an otherwise up day for the stock market overall.
Some traders blamed continued confusion over the government’s next step in the financial-system rescue -â€" specifically, whether the Obama administration would seek to create a "bad bank" to buy up garbage loans from banks, or try something else.
From Bloomberg News:
Schumer said the Obama administration should provide guarantees for the toxic assets clogging lenders’ balance sheets, rather than set up a "bad bank" to purchase them.
There are "two problems" with the bad bank, also known as an aggregator bank, solution, Schumer said. It would probably be "very expensive," costing as much as $4 trillion. "Second, it’s very hard to value those assets," and the prices could be set "so low that every other bank would go bankrupt."
If the bad bank bought toxic loans at rock-bottom prices, other banks could be forced to mark down similar securities they hold, wiping out another chunk of their capital.
By contrast, providing government insurance for bad loans, while leaving them on banks’ books, could fence off those assets without forcing big markdowns in the banking system.
But the insurance idea potentially leaves the banks to collect on any better-than-expected recovery of the loans, while taxpayers would eat the losses if the loans worsened. It’s the old "Heads I win, tails you lose," although the government could benefit in part by demanding stock options in the banks as payment for the insurance.
In any case, the government already has used the insurance option on big blocks of troubled assets at Citigroup Inc. and Bank of America Corp. in the last few months. That hasn’t made investors feel much better about those banks, judging by the action in their stocks.
Citigroup fell 19 cents to $3.46 today, and is down 48% year to date. Bank of America fell 70 cents to $5.30. BofA shares are down 62% this year, and are nearing the multiyear closing low of $5.10 reached on Jan. 20.
-- Tom Petruno
Photo: Sen. Charles Schumer. Credit: Chip Somodevilla / Getty Images
LinkedIn Snafu: The Peter Lynch Hoax
Author's note: So here's the situation: the other day, I received what I thought was an invitation to connect on LinkedIn from Peter Lynch. Yes, the investment guru Peter Lynch, with whom I had never met or corresponded with before.
Well, it turns out even the best of us can be scammed. Shortly after posting the blog below on ABCNews.com, Adam Banker of Fidelity Investments Media Relations contacted me. Here's what he had to say:
Dan,
The email that you received is fake. It is not from nor related to Peter Lynch in any way. Peter Lynch does not have a profile on LinkedIn and has never used LinkedIn. While these matters are difficult to prevent, we contacted LinkedIn about this matter and they removed the fake profile.
Regards,
Adam Banker
So I'm sure that had I accepted the fake invite from the fake Peter Lynch, the status of my nest egg perhaps would have suffered even a bit more than it already has.
For now, the main debt I owe would be an apology to Peter Lynch for my misperception -- and a note to our graphics department to see if they can add a bit of red to my photo here.
But for your reference -- and perhaps as a warning against believing every profile you see on LinkedIn -- the full text of the original blog is below.
---
ABC News’ Dan Childs reports: My account on the professional networking site LinkedIn has 66 connections to date -- a collection made up mainly of journalists, marketers and public relations professionals. It’s a formidable group of folks, in my humble opinion, though none are too famous yet.
So imagine my surprise when I get an InMail in my account inbox from Peter Lynch requesting that I accept his invitation to join his professional network.
Naturally, I was honored. Could it be that legendary investor Peter Lynch of Fidelity Magellan Fund fame wanted me in his professional network?
I clicked the link to his profile, and it checked out. Yes, this was the Peter Lynch. Perhaps this prolific author of financial books including "One Up on Wall Street" and "Beating the Street" hoped to reach out and consult me on my extensive knowledge of ... well, nothing at all financial. But hey, you don’t get to be worth $352 million by mixing only with the country-club crowd, right?
Or maybe you do. As I was about to click the “Accept†button, I realized that perhaps he might be trying to get in touch with someone else. A quick search on LinkedIn revealed a different Dan Childs who actually worked in the financial services industry. So rather than joining Mr. Lynch’s network right away, here was my reply to his invitation:
Hello Mr. Lynch,
It's a pleasure to make your acquaintance; thank you very much for your invitation to connect on LinkedIn. I'm happy to accept your gracious offer, but I couldn't help but wonder whether you meant to send it to me, the Dan Childs who works for ABC News, or this other Dan Childs, who appears to work with a hedge fund group in the U.K. (whose career seems more related to your line of work).
That being said, I do have an account with Fidelity and have been very pleased thus far with the management of my (modest) nest egg.
Have a great day,
Dan
A few days later I check my LinkedIn account again to find that Peter Lynch withdrew his invitation to connect. No personal reply, no further explanation.
So now it’s a bit awkward with Peter and me, because I really don’t know whether I hurt his feelings or he hurt mine.
Maybe at some point, however implausible, we were introduced. Admittedly, I’m terrible with faces. And he, like me, is a Bostonian. So perhaps he decided to reach out after some recent meeting that I can’t quite recall, and instead he was rebuffed with a message saying that he must have me confused with someone else by the same name. That could sting, I thought.
But then I reminded myself that I reached out quite politely (if not entirely honestly; my 401 (k) with Fidelity lost 44 percent of its value last year ... so no, Peter, I’ve not been very pleased so far with the management of my nest egg).
The most wrenching possibility is that my use of the word “modest†to describe my retirement savings led Lynch to believe that not only was I unworthy as a professional contact, but that I was also undeserving of a friendly note in return.
Bearing in mind that the recession has possibly been tough on his portfolio as well, there is that chance that we are closer in net worth now than we were at this time last year. Still, the truth remains that while 44 percent of my nest egg might purchase, say, a decent bottle of Scotch, 44 percent of his nest egg could probably buy and sell this particular journalist a thousand times over.
And from this point of view, if the market has been as unkind to Lynch as it has to many of the rest of us, it’s difficult to fault him for his silence. One would think that the gloomy economic news may be enough to make one dash out a quick InMail to a certain hedge fund manager across the ocean that reads, “Hey Dan, how about swinging by in the jet and we catch a quick Scotch or three?â€
Obama open to 'nips & tucks'
WASHINGTON - US President Barack Obama is open to making 'nips and tucks' to a massive economic stimulus plan but is happy with the overall package and wants it passed urgently, a top aide said on Tuesday.
'America can't wait. We need to turn this economic decline around and this package is essential to doing that. So the first order of business is to make sure that it gets enacted,' said senior White House adviser David Axelrod.
Provident among banks affected by data breach
Some customers receive new debit, credit cards after problem at outside payment processor A security breach at a major credit card payment processor has prompted more than two dozen banks nationwide -- including Baltimore-based Provident Bank -- to notify customers that their credit and debit card numbers might have been compromised.
Keep polls short & simple: CPM to EC
The CPM on Tuesday demanded that the poll schedule for the Lok Sabha elections be restricted to three weeks.
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