Jedi Mind Tricks: Finance Edition

It makes me feel better about myself that Felix Salmon is similarly perplexed about this:

The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, according to an executive at the bank.[…]

[…]But J. Steele Alphin, the bank’s chief administrative officer, said Bank of America would have plenty of options to raise the capital on its own before it would have to convert any of the taxpayer money into common stock.

“We’re not happy about it because it’s still a big number,” Mr. Alphin said. “We think it should be a bit less at the end of the day.”[…]

[…]Mr. Alphin said since the government figure is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government.

In addition to the obvious that TARP repayment will be contingent on a bank’s ability to survive without assistance from other government programs (like loan guarantees), the notion that a difference between the amount of TARP money already provided and the amount of additional capital the government thinks BoA needs somehow demonstrates a clean bill of health is flatly insane. I’ll be the first to admit that the techno-jargon bandied about in banking can be confusing, but even I have no problem understanding that the government is trying to tell BoA that it needs $35 billion more than it already has on reserve. As Felix Salmon notes:

It seems to me that BofA is in some weird state of denial here, where a $35 billion capital shortfall can be considered evidence that it actually has more regulatory capital than it really needs. What’s more, the bank now seems to be happy going on the record with this kind of analysis. Which doesn’t instill in me a great deal of confidence in its management.

More frightening, the spin seems to be working.


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