Any question as to whether the government was going to use its powers to directly prop up failing financial institutions will soon be eliminated.
According to Bloomberg: U.S. Treasury Said to Invest $125 Billion in Major U.S. Banks

The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government’s latest attempt to shore up confidence in the financial system.
…
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.

The government will obtain its stakes with a type of security designed not to dilute the value of common shares.

It is this last piece of the plan – that existing common equity holders will not get diluted by the government’s investments – that I hope is not accurate.

One of the key ingredients to getting the bailout proposal to the finish line was that any entity that sold assets to the government would have to give up equity. It seems unfair to allow existing equity holders to have a free pass at government funds in any case.

The warrant concept included in the bailout bill served 2 functions: 1) It allowed the government to participate in the upside of any plan to save these institutions, and 2) It forced existing management to take a hit, by sharing the pie with taxpayers.

Given Mr. Paulson’s sophistication and the job he has done to date, I would venture to guess that the article has this piece wrong.

But one thing appears to be clear: Mr. Fuld’s company, and my former employer, Lehman Brothers will likely be the first and the last major investment bank to fail if the government has anything to say about it. I would imagine he as well as investors in institutions like Washington Mutual are wondering why they got left out in the cold.