Feds Rescue AIG with $85 Billion Loan

[Scorpio]

There was a collective sigh of relief tonight in worldwide financial circles as the US government stepped in to rescue AIG which was on the brink of collaspe.

If AIG was allowed to fail, it would have devastated the world financial markets, so the US government didn't have a choice, but the troubling questions that remain are (1) Is AIG the last major financial institution to fail because of the sub-prime meltdown ? and (2) Can the US Government continue to bail companies who find themselves in this mess ?

http://news.yahoo.com/s/ap/ap_on_bi_ge/aig


WASHINGTON - In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."

Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."

"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.

The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.

Earlier, Fed chairman Bernanke and Paulson met with Sen. Christopher Dodd, D-Conn., Majority Leader Harry Reid, D-Nev., and House Republican leader John Boehner of Ohio, to brief them on the government's option.

"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."

On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent — and another 45 percent after hours. Still, no deal emerged.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance — such as banks and other financial companies — would have found themselves without protection against losses on the debt they hold.

"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."

New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims

[guyguy]

Scorpio,
The Federal Government has no money. It's broke! The only thing it can do is borrow from other countries and keep printing greenbacks. Therefore, the money it borrows now and prints now will be repaid over the next thousand years. So, to think that the Feds are truly bailing out anyone is just a façade designed to fool the majority of people.

[Harry Williamn]

poor guyguy ...think...who is going to come and collect that debt from the wordls most powerfull miltary

machine...actually America is the most powerful Military and financial force the world as we know it has ever

seen...so who is going to collect that money when America says I am not paying you a dime? You? Do you

actually think that Americans will go broke and starve ? Do you really believe that America could be ever

broke ? Do you have any idea of the wealth of America ?

Do you know about wealth ? Well suck on this little piece of hard candy:

People crying about recession and all the woes and financial worries etc and right now Goldman Sachs opened

a store so large it has its own Zip Code and shoes and handbags go for $18,000 handbags and $250,000

trunks! A hedge fund manager paid $45,000,000 USD for an apartment and you say America is going

broke ...what!

[guyguy]

Well, it seems that they've got the Forum Clown fooled Scorpio

[oecarb]

Scorpio,
The Federal Government has no money. It's broke! The only thing it can do is borrow from other countries and keep printing greenbacks. Therefore, the money it borrows now and prints now will be repaid over the next thousand years. So, to think that the Feds are truly bailing out anyone is just a façade designed to fool the majority of people.


For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads into the world’s largest market.

http://www.deccanherald.com/content/Feb ... 852884.asp (http://www.deccanherald.com/content/Feb182008/eb2008021852884.asp)

So the debt is being repaid before our very eyes. You buy from me and give me greenbacks. I save those greenbacks and I use them to buy your house, your car, your business, your wife's handbag and all your clothes. If you refuse to sell them to me, I stop taking your greenbacks. Your wealth is an illusion.

And, if Americans continue to resist (like when they stopped Dubai from buying the ports of when they stopped the Chinese from buing Unocal), the greenback could cease to have any value at all outside the USA.

So the debt will be "repaid". But, when the USA is fully owned by foreigners, what next? There could come a time when the rest of the world could refuse the greenback as payment.

[skl]

I heard this somewhere.

If I owe you 100$ thats my problem.

if I owe you 100 billion $ thats YOUR problem.

[greall]

Scorpio,
The Federal Government has no money. It's broke! The only thing it can do is borrow from other countries and keep printing greenbacks. Therefore, the money it borrows now and prints now will be repaid over the next thousand years. So, to think that the Feds are truly bailing out anyone is just a façade designed to fool the majority of people.


For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads into the world’s largest market.

http://www.deccanherald.com/content/Feb ... 852884.asp (http://www.deccanherald.com/content/Feb182008/eb2008021852884.asp)

So the debt is being repaid before our very eyes. You buy from me and give me greenbacks. I save those greenbacks and I use them to buy your house, your car, your business, your wife's handbag and all your clothes. If you refuse to sell them to me, I stop taking your greenbacks. Your wealth is an illusion.

And, if Americans continue to resist (like when they stopped Dubai from buying the ports of when they stopped the Chinese from buing Unocal), the greenback could cease to have any value at all outside the USA.

So the debt will be "repaid". But, when the USA is fully owned by foreigners, what next? There could come a time when the rest of the world could refuse the greenback as payment.


Short and sweet... :lol:

Nationalistic pride's worth crap these day and age with some towns in the US Midwest going broke.My mom says that American consumerism went crazy but my questions now are:

Can our local economy adjust to changes in the world's nominally greatest economy?

Will we see a return of fiscal conservatism?

Greg

[snowbird]

Scorpio,
The Federal Government has no money. It's broke! The only thing it can do is borrow from other countries and keep printing greenbacks. Therefore, the money it borrows now and prints now will be repaid over the next thousand years. So, to think that the Feds are truly bailing out anyone is just a façade designed to fool the majority of people.


You've got that right, it's all one big game of ....... let's pretend.

First it's the large financial institutions taking investors money and saying ....... let's pretend it's ours, and play fast and loose with it.

Then it's the small time investors saying ....... let's pretend once we invest this money there is no risk.

Then it's all the other greedy investors world wide saying...... let's pretend that because they are the biggest, they are the most secure, let's give them our money.

Then it's all the regulators saying, this is the US ..... let's pretend everything is always on the up and up.....'doh ask, doh tell'.

Now you have the US government covering the arse of one of the most reckless financial institutions..... But good, because if they don't allot of Canadian Investors (i.e. banks who insured their bad debts with them; Insurance companies who use them as re-insurers ect) all of them would have stood to loose their shorts. Doesn't matter if the money is on paper on in someone's head...... let's pretend every thing is 'honkey dorey' :roll:

[miktay]

The Fed paid $85 billion for an 80% stake in AIG.

So in the medium term, and with such a large ownership position, the government will be obliged to guarantee the solvency and activities of AIG.

So here we have, yet again, the government and private enterprise, in a profit seeking partnership.

Doesnt this sound suspiciously like Freddie Mac and Fannie Mae?

[snowbird]

It is my understanding that the US Government didn't 'buy' AIG, they simply gave them a loan, in which case, should AIG not be able to turn around...... the Government looses.

What concerns me about this 'stinkey business' is that the Government is using taxpayers money to shore up a publicly traded company? in other words, they are using poor people money to ensure that rich people don't loose their investments........ nice.

Oh, ah forget, dey saving jobs in the process :roll: seems like somebody still playing fast and loose with people money, only this time, they found some new suckers...... the taxpayer.

[miktay]

It is my understanding that the US Government didn't 'buy' AIG, they simply gave them a loan, in which case, should AIG not be able to turn around...... the Government looses.
Note that LIBOR is currently hovering around 3% which is an effective loan rate near to 11%
:shock:


Release Date: September 16, 2008

For release at 9:00 p.m. EDT

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.

The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

http://www.federalreserve.gov/newsevent ... 80916a.htm (http://www.federalreserve.gov/newsevents/press/other/20080916a.htm)

[snowbird]

....... U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.......

Let's hope they have the guts to exercise this option.

[greall]

At the rate that AIG's going,there mightn't be any dividend source.

Greg

[snowbird]

At the rate that AIG's going,there mightn't be any dividend source.

Greg


Well from what I know of dividends..... you first have to make more in you reserve than was projected to declare a dividend; my feeling is, even if they do turn things around in a year or two, regardless of the terms of re-payment of that loan, because it is taxpayers money, they should be required to pay down their debt to the Government before they pay any dividends.

[Scorpio]

:D
Well, it seems that they've got the Forum Clown fooled Scorpio

Guyguy, stop targeting de poor clow.....sorry, ah mean de poor man nah. :D

But, I get your point, the US is really in deep, it's going to take more than one presidential term to fix the US economy.

As for AIG, their faux pas was insuring CDO's with sub prime mortgages as their underlying assets to the tune of over 200 billion. If AIG had gone under, the ultimate investors in these CDO's would have been completely exposed to the sub prime mess, the ripple effect throughout the world ecomony would have been unprescedented.

It's a damn good thing the US government decided to sink the US into more debt and bailed out AIG.

But this isn't over yet.

[miktay]

The AIG Collapse for Dummies...


One year ago, most financial analysts would have laughed you out of their cubicles if you told them that AIG, one of the world’s largest insurers, would suffer a crisis forcing them to the edge of bankruptcy that only a government takeover could avert. This credit crisis, however, has affected the financial sector in ways that nobody dreamed of. In AIG’s case, it became the victim of what are known as credit default swaps, or CDS's.

CDS's are sort of like insurance against bad debts. You know that deadbeat cousin you have? Wouldn’t it be nice if you could purchase insurance against that $2,500 you gave him, just in case he ended up not being able to pay you back? That’s kind of what a CDS does.

In this case, a company making loans buys a CDS from an insurer like AIG. They pay AIG a premium, and in return AIG will cover most of the cost of the default just in case the loan does not get paid off. CDS's let companies extend more credit because they diminish their risk. This extension of credit, probably up until the beginning of this week, was generally regarded as a good thing for the economy because it enabled companies to invest, grow, and create jobs. CDS's were one of the tools that facilitated this credit expansion.

Unfortunately, as the housing market crumbled, the value of the contracts AIG issued went down, and AIG had to pay out on the insurance it had sold. As a result, the company took $18 billion in losses, its stock price dropped 94 percent, and it had to raise more capital to make good on its obligations.

Then on Monday the deathblow came: AIG had its credit rating downgraded by Moody’s and Standard & Poor’s. This obligated AIG to come up with $14.5 billion in collateral almost immediately. A thorough search of all of AIG’s couches, car seats, and pockets came up with far less than that amount.

Some private-equity firms tried to reach a deal with AIG to provide it with enough capital, but that fell through. At that point, the federal government decided that the consequences of an AIG failure would be too dire to stomach.

But why did the government save AIG and not Lehman Brothers, which they let die on the side of the road?

The financial structure of the U.S. has been compared to a house of cards, but I think of it more like the game Jenga. This game consists of a tower of blocks, and each player has to choose a block to remove without allowing the entire tower to come crashing down. Some of the blocks can be moved, some can’t. AIG could prove catastrophic.

The government feared that an AIG failure would allow the credit crisis to spill into “safe” investments like money-market accounts. Credit lending would become much riskier, and relatively healthy firms would be even more reluctant to lend money to struggling companies. Even though AIG’s subsidiaries that offer health, auto, property, and worker’s compensation insurance are by most accounts safe and solvent, the bad publicity would no doubt drive consumers away from AIG products, which could quickly make those subsidiaries insolvent.

While the AIG takeover has clearly not stopped the stock market’s slide, this move seems to be part of a broader government strategy to build firewalls around segments of the economy like mortgages, money-market accounts, and insurance, which are the true backbones of the debt-financed consumer economy.

The threat of financial catastrophe is by no means behind us: Two of the nation’s largest banks, Washington Mutual and Wachovia, are facing their own liquidity issues. Will the government save them? Stay tuned…

http://nymag.com/daily/intel/2008/09/ai ... _less.html (http://nymag.com/daily/intel/2008/09/aig_in_30_seconds_or_less.html)

[Harry Williamn]

From Lady "guyguy" to her Lord,Harry:

Harry my dear you are a gentleman and you know it...could you please,stop letting everyone on the forum

know how I dore you and cannot stay away from you ...please!

Please,stop pointing out the way I should have written my post because you do embarras me and I know you

are a Gentleman of the higest order so please cut me some slack here orkay Lord harry.

Thanks for sending me this information so now I could write about it and look real important on the Forum.

My Lord harry,you are a darling!

Understanding money and fthe use of money seems easy but it is quite a complicated thing and only because

you have so many people trying to ," get " the money which you have in your possession ( regardless if you

own it or not) and so many of those people are way,way,way,smarter and more experinnced in taking your

money than are at getting it and keeping it! Right there you have a huge problem and if you look back upon

your life you shall see that of the total amount of money which passed through your control you do not have

very much of it in hand or in kind!

Lesson one: Ever here about ," money lost its value?" Suck on that one and then think again about the crap

which you have said about," foreign people owning America!" I guess you really do not get it do you?

Ever heard about a country's production of goods and services ? Ever heard about Russia's debt to other

nations ? Ever heard them collecting?

The US dollar shall always be solid because YOU want it and you do care what the US owes only that you

want and therein lies the strength of the US dollar...you want it and most of the world it because you all want

to ," come to America!"

Think and grow smart!.

[guyguy]

I heard this somewhere.

If I owe you 100$ thats my problem.

if I owe you 100 billion $ thats YOUR problem.
Actually skl, the one with which I'm most familiar is;
"If YOU owe me $100.00, then it's MY problem.
If I owe YOU one million, then that's YOUR problem."

[Harry Williamn]

Only on a TNT Forum could my student( guyguy) post's could be so intelligent and highly important and above

all others...well done guyguy you have my blessings because your post is so high that we below cannot even

begin to fathom it so please,enlighten us!

Oh,by the way,Americans are not just smart,but Super Smart!

I am referring to those Americans who are in the

business of making money and squeezing the financial life out of Third world countries and ripping off their

natural resources and changing their Governments if they have to ( TNT is no exception for if the "broke USA

as you brilliant politico/economist say wants Patos Gone and Panday Gone they are Gone ...you call them a

weak country???) ...these folks are way beyond your puny minds and talents.They are masters of what they

do!

They ripped off China but you cannot even see it.

For example: Ford went to China and lead them on into trumpeting to the world and the Chinese People that

they will have these automobile factories and when they had hyped themselves into it at the last minute Ford

said: Sorry but we cannot really put our money into your country because your Government could suddenly

take it away because you all do not obey international treaties. China Capitulated and loaned the money to

Ford to build the Automobile Factories in China...what a scam ! Could you all think like that ?

More than that ,they now pay back the money per year but look at the rate of exchange dummy...the billions

which they borrowed when paid back with a weaker dollar is equivalent to paying back half or less of the

money ...ever wonder why America allowed its dollar to drop?

Wake up you neophytes and stick to your rum and roti arguments High Crimes of Finance are not for you!

Oh,by the way,Gold Jumped to its highest in ten years today! I am loaded with Gold which I bought in Canada

( no taxes) back in 2000 when it was $270.00 per ounce so read and weep as you watch your unprotected

401K Plans and Pension Plans dwindle in Value...you should of put your investments in Swiss Francs!

Sometimes I know I should charge you all for knowledge!

[oecarb]

which you have said about," foreign people owning America!" I guess you really do not get it do you?

Check this out:


Morgan Stanley Said to Be in Talks to Sell Stake to China's CIC

By Christine Harper

Sept. 18 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, is considering selling a larger stake to China Investment Corp. and is in talks about a possible merger with Wachovia Corp., said a person familiar with the matter.

China Investment Corp., the state-controlled investment fund, bought a 9.9 percent stake in Morgan Stanley in December after the New York-based investment bank reported a quarterly loss. The Chinese fund could buy as much as 49 percent of Morgan Stanley, said the person, who declined to be identified because the talks aren't public and may end in no agreement.

http://www.bloomberg.com/apps/news?pid= ... refer=home (http://www.bloomberg.com/apps/news?pid=20601087&sid=ao0BD9Zuhy3E&refer=home)

[lexbarker]

The US Feds now own 80% of AIC. In the good old days they used to call this type of activity Communism.

[oecarb]

The US Feds now own 80% of AIC. It the good old days they used to call this type of activity Communism.

And, I heard on Bloomberg a while ago that if AIG and Fannie Mae and Freddie Mac made profits, this would be money for all Americans. :lol: :lol: :lol: :lol: :lol:

When Dr Williams did it, it was called State Capitalism, though. :twisted:

[Beetle]

Morgan Stanley and Goldman Sachs are also in deep trouble.

[skl]

Actually skl, the one with which I'm most familiar is;
"If YOU owe me $100.00, then it's MY problem.
If I owe YOU one million, then that's YOUR problem."

makes no sense. in both cases the lender has the problem.

the adage only makes sense if its the borrower's problem if its a small amount (because he has to repay, but the lender can shrug off small losses)) and the its lender's problem if its a big amount (becuase he has to worry about being repaid)

"It's the old joke," Kashyap said. "If I owe you 100 bucks, it's my problem. If I owe you a billion, it's yours."

http://www.chicagotribune.com/business/ ... 8252.story (http://www.chicagotribune.com/business/chi-tue-mortgage-strategy-sep09,0,5258252.story)

[miktay]

And in related news...


FDIC swept up in financial crisis
By MARCY GORDON
Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.
The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual, the nation's largest thrift, or another struggling rival fails, economists and industry analysts said.
Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of Bear Stearns to J.P. Morgan Chase. On Tuesday, the Fed agreed to provide an $85 billion emergency loan to American International Group.

INDYMAC BANK

Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators. Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.

''It is important for people to understand that the deposit insurance fund, like all federal trust funds, is simply an accounting entry with the U.S. Treasury. . . . The U.S. Treasury will advance whatever cash is needed by FDIC to address bank failures and make good the deposit insurance guarantee,'' said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.

Treasury Secretary Henry Paulson said this week the country's commercial banking system ''is safe and sound'' and that ''the American people can be very, very confident about their accounts in our banking system.'' FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital.

But fear is growing on Main Street and Wall Street about the likelihood of bank failures and the strain that would put on the FDIC.

DRASTIC ACTION

FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury -- something that has never been done.

The FDIC's fund is currently below the minimum set by Congress in a 2006 law. The failure of IndyMac Bank in July cost $8.9 billion.

Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to the fund. That plan is likely to be approved by the FDIC board, which consists the Comptroller of the Currency, the Thrift Supervision Director and two other officials.

http://www.miamiherald.com/business/story/690863.html

[skl]

Wall Street entered into another round of speed dating, with bankers representing Morgan Stanley and Washington Mutual scrambling to put together deals in the biggest realignment of the financial industry since the 1930s.

Once vaunted investment banks like Bear Stearns, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. have lost their independence or been toppled at a breath-taking pace. And for a time on Thursday, fears intensified that the spreading credit crisis threatened to drag down the remaining global financial institutions and Main Street banks alike.

Shares of financial stocks initially plunged, then recovered as part of a dramatic afternoon reversal for most stock indexes after CNBC reported that Treasury Secretary Hank Paulson might back the creation of a new Resolution Trust Corp. to soak up bad loans and defaulted mortgages, their shares reversed course. The RTC was created by the government during the savings and loan crisis of the 1980s


And in London, Britain's Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.

http://news.yahoo.com/s/ap/20080918/ap_ ... ng_turmoil (http://news.yahoo.com/s/ap/20080918/ap_on_bi_ge/banking_turmoil)

[lexbarker]

Morgan Stanley and Goldman Sachs are also in deep trouble.
There is more to come. One report said that by next year the commercial mortgage crisis would be bigger than this housing one. Ban yuh jaw.

[snowbird]

Morgan Stanley and Goldman Sachs are also in deep trouble.
There is more to come. One report said that by next year the commercial mortgage crisis would be bigger than this housing one. Ban yuh jaw.

Well with this Global economy, and in particular Global Investing, this has the potential to pull down many many financial institutions world wide, not to mention bankrupt investors; yes, it certainly is a mess

[lexbarker]

I think the government was too much in a rush for this bailout which benefits only the big boys. These criminal organisations should be investigated properly before any money is given out or not. I think the government has been suckered to act immediately after the feds painted a picture of instant doom and gloom. This gives the Feds more power. What ever happens the sun will shine tomorrow. Forget about the bailout. That 700B that is proposed could start a new seed for a new economy. The government should take over the Federal Reserve otherwise they will always be in their grips. This whole global downfall is engineered.

[miktay]

Whether this package passes through the US congress remains to be seen. But bear in mind that it will not really alleviate much of the pain that is yet to come.

Homeowners continue to default in record numbers and will continue doing so after whatever bill is eventually passed . The obvious trickle down effect here is reduced consumer spending from retrenchment, ruined credit histories and general downbeat attitudes about an uncertain future.

In normal times govt fiscal policy w/b adjusted to stimulate demand. But with Freddie & Fannie underperforming loans to be written off, US auto and airline cos begging for a handout, the ongoing cost of the Iraq/Afganistan occupation, not to mention the looming threat of an insolvent social security as the first of the boomers near retirement; its going to be a long cold winter for a lot of Americans.

And when America sneezes other countries catch cold.

And the above is really the best scenario the United States can hope for ; otherwise confidence (read liquidity) will continue to be scarce & will prefer to remain safely ensconced "under mattresses".

And then it will be a really long cold hard winter. For eg the downturn in the Japanese economy took 10 years to work itself out, as many Far east bankers loathe to write down underperfoming loans in the hope that "things would get better tommorrow" stubbornly held on to old notions of value.

Well that tomorrow never came. And creditors were unwilling to fund lending activity & this exacerbated the crisis.

Hope that this time around wiser minds will prevail.

[oecarb]

Whether this package passes through the US congress remains to be seen. But bear in mind that it will not really alleviate much of the pain that is yet to come.

Homeowners continue to default in record numbers and will continue doing so after whatever bill is eventually passed . The obvious trickle down effect here is reduced consumer spending from retrenchment, ruined credit histories and general downbeat attitudes about an uncertain future.

In normal times govt fiscal policy w/b adjusted to stimulate demand. But with Freddie & Fannie underperforming loans to be written off, US auto and airline cos begging for a handout, the ongoing cost of the Iraq/Afganistan occupation, not to mention the looming threat of an insolvent social security as the first of the boomers near retirement; its going to be a long cold winter for a lot of Americans.

And when America sneezes other countries catch cold.

And the above is really the best scenario the United States can hope for ; otherwise confidence (read liquidity) will continue to be scarce & will prefer to remain safely ensconced "under mattresses".

And then it will be a really long cold hard winter. For eg the downturn in the Japanese economy took 10 years to work itself out, as many Far east bankers loathe to write down underperfoming loans in the hope that "things would get better tommorrow" stubbornly held on to old notions of value.

Well that tomorrow never came. And creditors were unwilling to fund lending activity & this exacerbated the crisis.

Hope that this time around wiser minds will prevail.

As you know, a council estate in the UK is a development of Social Housing provided by the state for citizens who cannot afford to buy. Jolly good Socialism. :twisted:



George Bush is turning the Land of The Free into a council estate

By Brian Reade 11/09/2008

How fabulous that George Bush, whose every political instinct stems from annihilating socialism, should give approval to the biggest nationalisation programme since the Second World War.

By propping up the USA's two biggest mortgage firms, more than half of American homes are now effectively owned by the state.

Who'd have imagined that when the most right-wing of neo-cons leaves office, 50 per cent of the Land of The Free will effectively be a council estate?

http://www.mirror.co.uk/news/columnists ... -20732414/ (http://www.mirror.co.uk/news/columnists/reade/2008/09/11/george-bush-is-turning-the-land-of-the-free-into-a-council-estate-115875-20732414/) :lol: :lol: :lol:

[oecarb]

From the Bloomberg web site:


Paulson Plan Is Still a Pig, Even With Lipstick
Commentary by Caroline Baum

Sept. 29 (Bloomberg) -- If Treasury Secretary Hank Paulson thought he could cram a $700 billion plan to buy financial institutions' toxic mortgage-backed waste through Congress with no questions asked, he got a rude awakening last week.

Paulson and Federal Reserve Chairman Ben Bernanke were grilled by Senate and House committees on the plan. Those same lawmakers were inundated with calls and e-mails from constituents expressing outrage at what they saw as a bailout of Wall Street for a problem of Wall Street's own making. It took them all weekend to hammer out something they could sign off on.

Why was it so hard for Paulson to close the deal after laying the blame at Congress' feet should a failure to act result in a collapse of the financial system? Maybe his report card holds the key.

Communication Skills: C-

Teacher comment: Student tries hard but finds the subject difficult.

It was a testy Paulson who showed up at the Senate Banking Committee on Sept. 23 to address lawmakers' concerns about the holes in his proposal. He could have used his predecessor's skills.

When President George W. Bush needed to sell his economic stimulus plan, heavy on tax cuts, in 2002, he turned to former railroad executive John Snow.

Snow was universally hailed as ``a good salesman,'' as if we, the people, were looking for a Willy Loman-type minding the Mint.

Without Snow's much-touted sales-and-marketing skills, Paulson can put lipstick on his plan, but it's still a pig.

Analytical Ability: C

Teacher comment: Student manifests some trouble connecting the dots.

Paulson has said repeatedly that the ``root cause'' of the problem is ``the housing correction, which has resulted in illiquid mortgage-related assets that are choking off the flow of credit.''

``The root cause of the problem is that we don't have any homebuyers,'' Edward Leamer, an economist at the University of California, Los Angeles, told the Associated Press.

The ``root cause of this crisis'' is ``the lack of capital in the banking system,'' said Paul Ashworth of London's Capital Economics. ``The only way the Treasury's plan would have any meaningful impact on banks' capital ratio is if it vastly overpaid for the securities it is buying.''

The problem with the assets is ``a lack of transparency,'' said Josh Rosner, a managing director at Graham Fisher & Co. in New York. ``The assets aren't illiquid. The seller is unwilling to sell them at market prices.''

If you don't diagnose the problem correctly, the odds are you won't prescribe the right medicine. The troubled assets are the result, not the cause, of loose lending practices, a housing bubble that burst, a glut of unsold homes and home prices that are still too high relative to incomes and rental costs, according to many economists.

The government's acquisition of underwater assets may give banks the wherewithal to lend. It's no guarantee that they will.

Credibility: C+

Teacher comment: Student relies too heavily on Goldman Sachs credentials.

When Paulson went up to Capitol Hill last week, he and Federal Reserve Chairman Ben Bernanke warned of dire consequences to the financial system if Congress failed to pass a bill quickly.

This is the same Paulson who assured Congress that the subprime crisis was contained, that Fannie Mae and Freddie Mac -- now wards of the state -- were well-capitalized, that he needed a bazooka in order not to fire it, and that the banking system was ``safe and sound.''

None of these assertions turned out to be accurate.

While public servants tend to present crises in the most favorable light, at some point the messenger starts to lose credibility.

Paulson to Congress: Trust me.

Congress to Paulson: Fool us twice, shame on us.

Class Preparation: D

Teacher comment: Student comes to class unprepared.

Paulson delivered a three-page legislative proposal requesting $700 billion from Congress. A year-end spending bill now before Congress providing more than $600 billion for three federal agencies runs more than 1,000 pages.

Granted, time was of the essence but that's no excuse for poor preparation.

Social Skills: D

Teacher comment: Student relates poorly to those around him.

Even as Paulson was presenting a government rescue as the only option, the private sector somehow was finding alternative solutions.

Warren Buffett invested $5 billion in Goldman Sachs Group Inc., Mitsubishi UFJ Financial Group Inc. formed a strategic alliance with Morgan Stanley, JPMorgan Chase & Co. acquired the assets of failed Washington Mutual Inc., Barclays picked Lehman Brothers' carcass clean, and Merrill Lynch & Co. saddled up with Bank of America Corp.

While it's true banks are reluctant to lend to one another for a period longer than overnight, ``the Fed will lend,'' said Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago. ``That's what the Fed was created to do.''

The Fed has loaned so much money through its various lending facilities that its Treasury holdings are down to 42 percent of its balance sheet compared with a pre-crisis 90 percent.

The Paulson plan, as originally presented on Sept. 20, would have bailed out the institutions holding mortgage derivatives without doing anything about the underlying homes or adequately protecting the taxpayer, who would have been taking the risk without potential for reward. Congressional negotiators addressed those glaring omissions in 'round-the-clock weekend negotiations and announced yesterday they had reached an agreement. Both the House and Senate plan to vote on the proposal this week.

We will never know what would have happened without the largest government bailout in history. And it's far from clear this new New Deal will be the end. Surely there is a better way to dispose of bad assets.

``If you need money, sell assets,'' Rosner said. ``Excess inventory is liquidated at 99-Cent Stores every day, and it doesn't require the government to get involved.''

http://www.bloomberg.com/apps/news?pid= ... efer=home# (http://www.bloomberg.com/apps/news?pid=20601039&sid=akLF7S6zlJdU&refer=home#)

[miktay]

What seems incongrous about Mr. Paulson's doomsday warnings to legislators is that in the face of all the financial uncertainty there are ready and willing buyers for seemingly distressed financial assets.

Look at the recent history:

JP Morgan Chase buys (parts of) Bear Stearns and WaMu
Barclays buys (parts of) Lehman Bros
BOA buys (parts of) Merryl Lynch & Countrywide
Buffet invests in Goldman Sachs
Citigroup buys (parts of) Wachovia
Various soverign wealth funds and offshore investors invest in Morgan Stanley

Viewed fm another perspective this looks more like a fire sale obscured in the uncertaincy of a financial crisis.

[oecarb]

Viewed fm another perspective this looks more like a fire sale obscured by the uncertaincy of a financial crisis.

Anything will sell.at the right price. :evil:

[snowbird]

What seems incongrous about Mr. Paulson's doomsday warnings to legislators is that in the face of all the financial uncertainty there are ready and willing buyers for seemingly distressed financial assets.

Look at the recent history:

JP Morgan Chase buys (parts of) Bear Stearns and WaMu
Barclays buys (parts of) Lehman Bros
BOA buys (parts of) Merryl Lynch & Countrywide
Buffet invests in Goldman Sachs
Citigroup buys (parts of) Wachovia
Various soverign wealth funds and offshore investors invest in Morgan Stanley

Viewed fm another perspective this looks more like a fire sale obscured in the uncertaincy of a financial crisis.

Add to that list:
RBC Capital Markets (Royal Bank of Canada)
TD Bank (Toronto Dominion Bank)
Manulife Financial Corp (Insurance)
Sun Life Financial (Insurance)
Great West Lifeco (Insurance)

The Canadian financial institutions have given a whole new meaning to the term "Cross Border Shopping". Everyone of them are just 'chomping at the bit' to pick up some sweet deals.