Rebirth of England.

Chapter 608: Capital Injection into Morgan Stanley

It can be said that Barron was quite busy during his time in New York. He personally communicated with many people.

For example, after the previous meeting, he met the "rescue trio" again.

"We will inject capital into some companies, gentlemen, but these injections need to be evaluated first. We need to ensure the risk level of the other party's assets to ensure that their operations are healthy enough after the injection."

After hearing Barron’s words, Paulson said:

"Thank you very much for your contribution to maintaining our financial security, Your Highness. I believe that under our coordination, we can make the most feasible capital injection plan."

The so-called "rescue trio" refers to Paulson, Bergen and Geinert.

Paulson was the U.S. Treasury Secretary at the time. Before that, he had served as the president of Goldman Sachs - this also shows the influence of Goldman Sachs in the United States. Many of their former senior executives had served in important positions such as finance minister and local chairmen.

Bergen was the chairman of the Federal Reserve, while Geithner was the president of the New York Fed at this time, and then in Barron's previous life, and soon in the Obama administration, he would take over the position of Treasury Secretary.

These three people have great say in the government's rescue of the market and play a leading role, so they are called the "rescue trio."

Because of the controversy caused by their previous rescue actions, the three would like to rescue and inject capital into some banks through private companies and financial institutions such as DS Group and Standard Chartered Bank.

Therefore, they welcomed Barron's statement very much and promised to "communicate" on some of the policy issues.

……

7月28日，星期一，美利坚道琼斯指数下跌7%；标准普尔500指数下跌8.8%，这是自1987年10月股市大崩盘以来的单日最大跌幅。

The reason for the sharp drop in the U.S. stock market was that the U.S. House of Representatives rejected the $228 billion troubled asset rescue plan by 205 votes to 7000 that day.

Two-thirds of the Elephant Party members and two-fifths of the Donkey Party members voted against it.

The main disagreement over the $7000 billion asset rescue plan proposed by Bush Jr. this time is that the Democrats want to include taxes on the financial industry and restrictions on the salaries of Wall Street executives in the plan, but Paulson believes that the market has no way to accept such a plan, which is like trying to save someone while punishing him.

Another thorny issue is the timing of the funds. The Democrats are quite sure that Obama will win this election, so they do not want the Bush administration's Treasury Department to use all the funds. Therefore, they hope to give $2500 billion or $3000 billion first, and leave the rest of the funds to the new government.

"Without this, wouldn't we have nothing to do?"

After this result came out, Deputy Commander Cheney asked:
"Doesn't the Fed have power? Do we have power?"

"No, we didn't."

Paulson replied.

After the collapse of Lehman Brothers, Paulson realized that he needed greater power to carry out the rescue operation, and this power required authorization from Congress.

Paulson needed to ask Congress for a grant to buy the troubled home mortgages on the market.

As early as July 7, he submitted a plan to acquire troubled assets to Bush Jr.

Paulson spent a lot of time and effort on the final figure of $7000 billion.

From a political perspective, 5000 billion yuan would make Congress unhappy, 7000 billion yuan would make Congress even more unhappy, and close to 1 trillion yuan might be problematic.

On the other hand, there were about $11 trillion in home mortgages in the United States at the time, and based on his professional judgment, $7000 billion was enough to stimulate market vitality. On July 7, when Paulson, Bernanke and Bush had lunch together, Paulson suggested that the asset acquisition plan might also require a plan to obtain direct equity in financial institutions.

This has always been Bernanke's view, that is, to inject capital directly into financial institutions when necessary.

However, this behavior, which is similar to "nationalization", is difficult for the target party to accept.

On the same day, they added the Troubled Asset Relief Plan, which was supplemented with tax expansion, energy provisions and the Mental Health Equality Act, and it was passed in the Senate by a vote of 74:25.

8月2日，7000亿美元资产救助计划再次回到众议院投票，最终以263票对171票获得通过。

Under the plan, the Treasury Department can immediately use $2500 billion, and if the president proves to Congress that it is necessary, it can use another $1000 billion.

To disburse the remaining $3500 billion, the Treasury Department must submit a report to Congress detailing its recapitalization plans.

At 2:30 p.m. that day, Bush Jr. signed the bill and it came into effect.

However, for then-Federal Reserve Chairman Ben Bernanke, this also meant that the Fed no longer had to bear the responsibility of restoring financial stability alone.

But the crisis continues.

……

Almost at the same time, when the "rescue trio" was racking their brains for a $7000 billion asset rescue plan and trying to get it passed by Congress, Barron took action again.

After IC Capital invested US$50 billion and acquired a 9% stake in Goldman Sachs Group, Morgan Stanley, one of the only remaining five major investment banks on Wall Street and which, like Goldman Sachs, has completed its transformation into a bank holding company, also received capital injection.

On July 7, British Fortune (BFT) Fund reached an agreement with Morgan Stanley, the second largest brokerage firm in the United States. BFT Fund will invest in acquiring 30% ​​of Morgan Stanley's common stock, thus becoming the bank's largest shareholder.

The acquisition price will be based on the average stock price of the previous 30 trading days. The BFT Fund will use a total of approximately US$85 billion to purchase newly issued shares of Morgan Stanley.

According to the agreement reached by both parties, after completing the acquisition of Morgan Stanley's shares, BFT Fund will send one or more directors to Morgan Stanley's board of directors to participate in its operations and management.

It can be said that when Morgan Stanley most needed funds from strategic investors to stabilize market confidence, the $85 billion investment from the BFT Fund greatly alleviated its critical situation.

In fact, Morgan Stanley's initial target for help was China.

To this end, Paulson made a special call with Hua Xia’s senior management, hoping to persuade them to inject capital into Morgan Stanley, but the request was ultimately rejected.

At the end of last year, China Investment Corporation, a sovereign wealth fund of China Asset Management, invested US$56 billion in Morgan Stanley in the form of mandatory convertible bonds, and this investment has now suffered heavy losses.

At this time, CIC was considering increasing its stake in Morgan Stanley to 9.99%, but because Hua Xia was concerned about the safety of the funds if it continued to invest, it eventually terminated the negotiations.

At this moment, the $85 billion in funds from the BFT Fund is of great significance to Morgan Stanley.

It's not just this sum of money that can greatly increase the possibility of Morgan Stanley surviving the crisis, but also the fact that the BFT Fund under Barron's name is willing to invest heavily in Morgan Stanley, indicating that this world-renowned investor has expressed his optimism about Morgan Stanley in this way - verbal praise may be false, but the investment of real money will never deceive people.

At this moment, investors' confidence is the most precious.

Even during this period, Morgan Stanley's CEO John Michael talked about the BFT Fund's investment in almost every public occasion. In addition to the fact that the investment they received was indeed of great significance, it was also to strengthen the market's confidence in Morgan Stanley.

(End of this chapter)