The financial risk for power companies is so large, in fact, that they are unable to handle the risk without guarantees and subsidies from the government.
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The old shareholders will get the equity in the bad bank. (In any restructuring, bondholders should do better than equity.) And the FDIC minimizes its risk because it guarantees the deposits in the good bank.
Snowling ticks off other advantages for Sallie: low interest rate risk (given government guarantees), profit growth expectations in the 15% range, a rich return on equity (net income divided by average book value) of 38%, and a cheap valuation relative to history and the broader market.
U.S. commercial banks -- which actually extend the loans in support of U.S. grain sales and which are, in turn, "covered" by risk-free taxpayer guarantees -- could possibly be prevented from proceeding in the case of transactions involving grain that has not yet left the United States.
For some reason, most investors know not to take analyst equity ratings as absolute guarantees of future risk.
Even where a loan is related to development, risk can be managed with guarantees, additional capital and cash flow projections based on reasonable assumptions.
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In 1996, Italy refused to extradite one of its citizens wanted for murder in Florida, saying it did not receive sufficient guarantees he would not risk execution if convicted.
Criticizing the compensation packages of JPMorgan's Dimon and his senior associates might be popular with voters, but regulators would be better off focusing on the source of the problem -- the mispricing of government guarantees that create perverse risk incentives in the first place.
Morgan already makes a market in the risk of default after 2005, when debt without guarantees will start to be issued.
Globally some of the liquidity conditions that supported risk appetite, including central bank policies such as guarantees and quantitative easing, show no signs of being removed.
It's an asymmetric distribution of risk and rewards that more-or-less guarantees long-term financial disaster (you'll note a similarity with what happened in the banking sector, where bonuses in the boom years of lending were enjoyed by bankers, and losses when it all went pop fell on taxpayers).
Those who use money market funds know they are not risk-free and that they come with no federal guarantees.
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Overlooked in the FINRA prohibition against guarantees is that the byproduct of permitting guarantees would likely be enhanced due diligence and risk analysis by those making such promises.
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The more risk a bank takes, the greater the value of government guarantees and potential bailouts.
As Fannie expanded its subprime loan purchases and guarantees, the SEC alleges that executives hid the risk from investors.
The new EFSF is designed to reduce systemic risk by having both greater flexibility in its operations and a larger guarantees from which to operate.
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There has to be some understanding that these are profits created by government guarantees and government intervention rather than created by the normal risk-taking behavior of capitalist firms.
Regulators are aware that bank stockholders have an overriding desire to take more risk than is good for society because chronic under-pricing of government guarantees makes it profitable for banks to seek risky assets and lever them as much as possible.
But nothing guarantees that current practice achieves the right balance between excessive and insufficient risk-taking.
That risk depends on the lending policies of the British banks which the government in effect guarantees, as the recent crisis has revealed.
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