The latest bailout news from the People's Soviet Republic of America

Mike Shedlock magnificently translates financial-speak in this latest joint statement from the Treasury and Fed:
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A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

My Comment: Clearly, the US Government will continue to bail out insolvent banks no matter what it costs taxpayers.

"We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis.

My Translation: "This new capital will not cost anyone anything. It will be dispensed by magic fairies and recovered at a later date. We cannot share exactly how this magic works because under the rules of the magic ministry, we would be stripped of our magic hats and lose the rights to dispense magic if we did. Trust us. This is the proverbial free lunch that everyone says does not exist. However, like magic pixie dust, it does exist, it really does."

Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion feature will enable institutions to maintain or enhance the quality of their capital.

My Comment: The market cap of Citigroup is $11.5 billion. The market cap of Bank of America is $20.3 billion. How does a Government guarantee $400 billion of Citigroup and Bank of America debt and inject another $75 billion in preferred convertible shares without costing anyone a dime and without requiring any new capital? Why, magic pixie dust of course.