Sunday, May 3, 2009

Krugman Still Very Suspicious About Preferred Conversion to Common

Paul Krugman, under the headline Bank Capital Hocus Pocus, again brings up the point that there doesn't seem to be any financial justification for the conversion of preferred stock into common stock, that the Obama administration is hailing as a major instrument that will be used to shore up bank balance sheets:

Aha. When the proposal to bulk up bank capital by converting the government’s preferred shares into common equity came out, I pronounced myself baffled. But was I missing something? Via Henry Blodget, Paul Kasriel of Northern Trust says the same thing, in more detail.

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