Fact Checking the Bailout: Wachovia and the Free Market
Last week Wachovia announced it would be acquired by Citicorp. Wachovia had come under pressure when Washington Mutual was seized and several large Wachovia depositors reduced their deposits. Federal Regulators then pressured Wachovia to put itself up for sale. A deal was arranged with substantial Federal participation wherein Citibank would acquire the banking operations and absorb potential losses up to $42 billion. The FDIC would absorb anything above that. Citibank would give the FDIC warrants in compensation for that risk.
Not terrible right? The Feds seem to have found some reasonable middle ground right?
Not so fast. Wells Fargo announced on Friday they would like to acquire Wachovia for a much better price and without any risk to the FDIC or indirectly to taxpayers. Could we be witnessing the first evidence that the free market will actually sort out the credit crisis better than the politicians?
But Wachovia, having been pushed into Citibank’s arms by the Federal Government, won’t find it so easy to preserve what’s left of their shareholders’ investment. Citibank has already taken steps to enforce the federally funded shotgun wedding.
You can read all about it in this wikipedia article.