Thread: Radical Bailout Plan Has Jawdropping Price Tag

Radical Bailout Plan Has Jawdropping Price Tag

Friday, September 19, 2008 8:30 PM

WASHINGTON -- Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jawdropping price tag -- a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions.

Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.

A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."

The administration is asking Congress for far-reaching new powers to take over troubled mortgages from banks and other companies, including purchasing sour mortgage-backed securities. Administration officials and congressional leaders are to work out details over the weekend.

Congressional officials said they expected a request for legal authority to buy up the bad loans, at a cost in excess of $500 billion to the government. Democrats were discussing whether to try to attach middle class assistance to the legislation, despite a request from Bush to avoid adding controversial items that could delay action. An expansion of jobless benefits was one possibility.

In other major steps, the Treasury Department and Federal Reserve moved to give money-market mutual funds the same kind of federal protection, at least temporarily, that now applies to savings and checking accounts and certificates of deposit at banks. Money-market accounts sold through retail banks are already FDIC insured.

The spreading global selling panic had started to threaten some money-market funds, usually thought of as rock-solid investments. Administration officials feared a run on these funds, held by millions of Americans.

"Every American should know that the federal government continues to enforce laws and regulations protecting your money," Bush said at the White House. The 75-year-old Federal Deposit Insurance Corporation now insures savings and checking accounts and certificates of deposit up to $100,000.

Separately, the Securities and Exchange Commission acted to block short-selling in financial securities. That is a trading method that bets the value of stocks will go down. It has been blamed for accelerating the plunge in stock prices of banks and other financial institutions.

"This is a pivotal moment for America's economy," Bush said. "In our nation's history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment."

Congressional leaders of both parties welcomed the administration's bold moves, after a series of ad hoc rescues.

The talk on the presidential campaign trail, barely six weeks before the election, was of bipartisanship, too.

Democrat Barack Obama said it was critical that leaders in both parties work in concert. "Truly, we are all in this together," he said.

GOP presidential nominee John McCain said leaders should put aside partisan differences and "any action should be designed to keep people in their homes and safeguard the life savings of all Americans."

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. That includes the rescue of investment bank Bear Stearns in March, the takeover of mortgage giants Fannie Mae and Freddie Mac earlier this month and the takeover of the world's largest insurance company, American International Group, just this week.

But the contagion continued to spread, bringing political consensus that drastic and comprehensive federal action was needed.

There are precedents for such a federal takeover.

In the late 1980s, the government created the Resolution Trust Corporation to tackle the savings and loan crisis. It acquired the defaulted mortgages, foreclosed real estate and other assets of nearly a thousand failed S&Ls, restoring order and stability to the system. Resolving that crisis took six years and $125 billion in taxpayer money -- roughly equal to $200 billion in today's dollars.

And there was the Reconstruction Finance Corporation, a Depression-era relief program formed in 1932 by President Hoover that tried to revive the market by giving loans to banks and other businesses.

On Friday, Treasury Secretary Henry Paulson gave few details about the structure of the new program. Asked about an overall price tag, he said, "hundreds of billions" of dollars.

Congressional leaders said they were ready to move quickly but still needed details of the administration plan. For instance, there was no indication of what the government would get in return from financial companies for the federal assistance.

Paulson and Federal Reserve Chairman Ben Bernanke briefed lawmakers in both parties on the idea by conference call Friday.

In a session with House Democrats, they described a plan where the government would in essence set up reverse auctions, putting up money for a class of distressed assets -- such as loans that are delinquent but not in default -- and financial institutions would compete for how little they would accept for the investments, said Rep. Brad Sherman, D-Calif., who participated in the call.

"You give them good cash; they give you the worst of the worst," Sherman said of the plan, which he complained that Bush and his economic advisers were trying to panic lawmakers into rubber-stamping.

Paulson rejected Democrats' calls to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure, Sherman said. "He's doing his best to paint a picture of the sky falling, and then he says, because the sky's falling, you have to do it my way."

Paulson said the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.

"I am convinced that this bold approach will cost American families far less than the alternative _ a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson. "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."

Bush said simply, "We must act now."

"America's economy is facing unprecedented challenges. We're responding with unprecedented measures," Bush declared, standing in the White House Rose Garden with Paulson, Bernanke and Christopher Cox, chairman of the Securities and Exchange Commission.

Shortly after his remarks, Bush called congressional leaders with whom the administration will be working on the final plan. He spoke to Senate Majority Leader Harry Reid, D-Nev., House Speaker Nancy Pelosi, D-Calif., Senate Republican leader Mitch McConnell of Kentucky and House GOP leader John Boehner of Ohio.

The administration wants to see a package emerge from the weekend, to lend calm to Monday morning's market openings, said Keith Hennessey, the director of the president's economic council. The goal is to have something passed by Congress by the end of next week, when lawmakers recess for the elections.

Paulson said Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market. He also said the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crises.

"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.

Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money-market mutual funds. And the Federal Reserve announced it would expand its emergency lending program to help support the $3.4 trillion in total assets of the funds.

On Wednesday alone, investors had pulled more than $89 billion from money-market funds, according to iMoneyNet, publisher of the newsletter Money Fund Report.

The government's actions could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has come to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.

European Central Bank, Swiss National Bank and Bank of England also offered up more cash Friday. The three banks put a combined $90 billion into money markets.

http://moneynews.newsmax.com/companies/ ... 32650.html

Can Uncle Sam Afford All This?

Friday, September 19, 2008 9:24 AM

These are momentous times in the financial markets. That's why the Federal Reserve has been taking extraordinary steps to stabilize financial conditions — even to the point of stretching its own finances.

The central bank has been generously using taxpayer dollars to bail out ailing financial firms and keep liquidity flowing in the battered marketplace.

The latest handout came this week with the $85 billion loan promised to American International Group to prevent the corporate giant from collapsing under the weight of its insurance commitments on risky debt. Sure, the government is getting a hefty interest rate for its cash — one that tops 11.5 percent — but there is still no guarantee that such funds will be returned.

Long considered the lender of last resort, Ben Bernanke's Fed is up against one of the biggest financial crises in decades. That's why it has actively been trying to keep the financial system functioning through turmoil caused by massive losses on mortgage debt and other risky assets.

Not only has the Fed been using monetary policy to ease credit conditions and stimulate the economy — it has lowered overnight bank lending rates from 5.25 percent to 2 percent — it has also extended massive loans to financial companies, extended borrowing to banks and investment banks and changed some of its own rules to allow for more liquidity.

On Thursday, the Fed joined with other major central banks to inject as much as $180 billion into money markets in an attempt stave off the growing global financial crisis. In a separate action, it pumped another $55 billion into U.S. markets.

"We are in an emergency crisis. You suspend barriers. You lift rules," said David Kotok, chairman and chief investment officer at Cumberland Advisors. "That happens when you are staring in the face of contagion and a meltdown."

But this "sovereign wealth Fed," as some have jokingly referred to the central bank — after the foreign funds that have been scooping up U.S. assets — is feeling the financial impact of its role in this crisis.

As the year began, the Fed had close to $800 billion of Treasuries on its books. By last week, that dropped to $479 billion. Of that new amount, some $200 billion was pledged to the Fed's term securities lending facility, which auctions loans of Treasuries, according to Tony Crescenzi, chief bond market analyst at Miller Tabak & Co.

Subtract the $85 billion the Fed has said it would lend to AIG, and the Fed's Treasury holdings would dip below $200 billion. When levels get that low, "the Fed has to embark on a course to expand its balance sheet," Crescenzi said.

That drove the central bank on Wednesday to take the unprecedented step of asking the Treasury Department to sell debt on its behalf. The first of those auctions raised $40 billion, and two more to raise an additional $60 billion are scheduled.

While that provides a cushion for the Fed's coffers, it doesn't wipe out the risks to its books.

The Fed can "print" money if it runs low, which economists said it effectively did through its actions on Thursday to pump more money into the market. That, of course, has its risks, too — adding money supply to the financial system is often deemed inflationary.

Then there are its loan commitments, like the one made to AIG to prevent it from collapsing. It was a deal the central bank had to do since AIG had insured much soured debt in financial markets, meaning its demise could have had systemic consequences.

U.S. taxpayers could end up owning the insurance giant, and getting their money back hinges on whether AIG can sell off its parts and pay back the loan within two years. It could be a tall order in this tough economy, but analysts believe there will be interest in some of its parts, like its profitable aircraft leasing business.

There are some potentially bigger concerns for the Fed's finances. For instance, the Fed has started to accept more toxic collateral in its Primary Dealer Credit Facility, which lends cash directly to securities firms. That means companies now can pledge equities and junk debt to back up their borrowing, two of the most volatile parts of financial markets in the last year.

The Fed also has waived its restrictions on how much bank holding companies can lend to their investment banking affiliates. The depositor-insured funds had previously been walled off from being used by the companies' riskier broker-dealer units in order to protect the capital of a bank and its depositors.

"This is reckless as abuse of this new form of subsidization of near insolvent broker dealers with commercial banking deposits may eventually impair the viability and solvency of their commercial banking regulation," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

At least some investors are worried about what the Fed's actions lately say about U.S. financial health. The price of U.S. Treasury credit default swaps — which are a form of insurance on creditworthiness — has surged in recent days to new highs.

The Fed is taking bold steps in this crisis, but let's not overlook how that could affect its own finances.

http://moneynews.newsmax.com/streettalk ... 32440.html

Last I head the bailout will be $700 billion. Oh but the traitors in DC feel it is well worth it, low income minorities and illegal aliens now have houses.

Next they will want $700 billion to give them first class health care.

And affter that $700 billion for fancy SUVs with low profile mag wheels. Oh wait, we have already paid for that.

Originally Posted by Bowman

Last I head the bailout will be $700 billion. Oh but the traitors in DC feel it is well worth it, low income minorities and illegal aliens now have houses.

Next they will want $700 billion to give them first class health care.

And affter that $700 billion for fancy SUVs with low profile mag wheels. Oh wait, we have already paid for that.

It is amazing to me that so many Americans are upset with a proposed $700 BILLION bailout of American financial institutions, but have nothing to say concerning Obama’s $845 BILLION 'Global Poverty Act' which is designed to establish global socialism with the American Taxpayer being enslaved to pick up the tab, and their tax money to be sent overseas by Obama.


Hopefully, logical thinking will prevail in this election rather than stubbornness based upon principle which surrenders our country to the greater of two evils.


By the way, I am very much opposed to the $700 BILLION bail out, especially when the ringleaders of these financial institutions were paid hundreds of millions of dollars in salaries and then given golden parachutes to boot. They should be tracked down and their ill gotten gains seized and deposited in the federal treasury.

Isn’t it time for the American people to pay a visit to Washington, D.C. with their sporting gear and a very large supply of tar and feathers?

JWK

History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance._____ James Madison

Americans should beware, because all of this was part of the planned actions necessary for the NAU to come into existence. To bankrupt our banks, lending organizations, open the immigration floodgates, outsource jobs, relocate main-stay companies to foreign countries, etc.

Our presidential elections have given us a choice of "socialism" or "socialism". Take your pick.

The plan was to get Mexico, Canada and America at the same monetary level in order to introduce the "AMERO". It seems like Bush has won this one. I can see his "fat face' righ now just snickering at all of us.

Americans have to PAY for the incompetence of these elite rat finks. We are stuck with billions of dollars of bills while the rich keep reaping off of all of us. No one should have to pay for STUPID people that KNEW THEY COULDNT AFFORD LOANS ON HOUSES. I RESENT THESE PEOPLE AND THE LENDERS FOR MESSING UP THE ECONOMY.


SORRY, BUT I COULDNT HELP BUT RANT!

I no longer recognize this as my country... this is a failed state and was planned by the political and financial elite ... we are far beyond the turn around point and Bush knows it

We are nothing more than a shell and a rogue state at best