U.S. Housing Starts
/ All Employees: U.S. Manufacturing
Rise in Dollars
and Government Dependence...
U.S. Dollar Base (Monetary Base)
/ U.S. SNAP Benefits (Food Stamps)
Click on above charts to enlarge
"The fact
that we are here today to debate raising America’s debt
limit is a sign of leadership failure. It is a sign that the
U.S. Government can’t pay its own bills." -- Senator Obama on the U.S. Senate floor
on March 16, 2006
U.S. Federal Debt
Reaches 105% of GDP
Q4
2016
Rising rapidly after 2008,
total public debt as a percentage of Gross Domestic
Product reached 105% in the fourth quarter of
2016.
Real Unemployment is
Uglier
March
2015
Here’s what the unemployment rate would look like if the labor force participation rate — basically the number of people in the economy working or looking for work — had remained constant since June of
2009...
Why June of 2009 and not some other random month? That is when the National Bureau of Economic Research’s Business Cycle Dating Committee — a group of economists who determine when recessions end and begin — believe the most recent recession finally ended.
What does this all mean? Rather than being the sign of a vibrant economy, the falling unemployment rate is actually an arithmetic artifact of the BLS head-counting process. If the labor force participation rate had held steady since 2009, the number of people in the labor force today would total nearly 162 million people. Instead, BLS reports the official number to be just shy of 155 million.
And thanks to how BLS calculates and reports the official unemployment rate, those 7 million people are not included among the ranks of the unemployed. Add them back in and you have an unemployment rate that averages a very stubborn 10.8 percent since the end of the recession.
more...
THE LINE IS CROSSED —
no more debt limit! AGAIN!!
October
2013
By Act of October 17,
2013...
This generation's
struggles have few historical precedents, at least in
the U.S. The recession of the early 1980s was
comparable but was followed by a rapid recovery. The
economic legacy of the Great Depression was erased to
a large degree by World War II and the boom that
followed. No similar rebound looks likely this time
around. What evidence does exist suggests today's
young people will suffer long-term consequences.
Fallen US wages after
"end of recession" July
2013
THE LINE IS CROSSED —
no more debt limit! (for
a while) February
2013
On February 4, 2013, the
President signed legislation suspending the debt limit
until May 18, 2013. As a result, the debt limit does
not apply after February 4, 2013.
“It is a sign that we now
depend on ongoing financial assistance from foreign countries
to finance our government’s reckless fiscal policies. Over
the past five years, our federal debt has increased by $3.5
trillion to $8.6 trillion. That is ‘‘trillion’’ with a
‘‘T.’’ That is money that we have borrowed from the
Social Security trust fund, borrowed from China and Japan,
borrowed from American taxpayers.”
-- Obama in 2006 speech on the debt limit
NOW...
According
to Al Lewis on The News Hub, we're actually in a
depression right now, but most people don't see it.
One out of seven Americans are on food stamps - if
they weren't getting cards in the mail every month,
you'd see them in soup lines. more...
Effective
October 1, 2008 the federal Food Stamp Program was
renamed the Supplemental Nutrition Assistance Program
(SNAP). SNAP recipients use EBT cards, which are
similar to debit cards, to purchase food in authorized
retail stores.
EBT
Cards
help make
depression
invisible
According
to Keynesian economic theory (developed
and used during the first Great Depression), like
other forms of government spending, SNAP, by putting
money into people's hands, increases aggregate demand
and stimulates the economy.
Another
sign of economic depression... Social Security
Disability Insurance benefit payouts are growing at an
alarming rate. As people see their unemployment
insurance benefit payments run out, many apply for and
receive SS disability payments. more...
LOST
FED —
QE3
September
13, 2012New
York Times
The Federal Reserve opened
a new chapter Thursday in its efforts to stimulate the
economy, saying that it intends to buy large
quantities of mortgage bonds, and potentially other
assets, until the job market improves substantially. more...
LOST
INCOME —
last seen in 1995
September
13, 2012WSJ
The income of the typical
U.S. family has fallen to levels last seen in 1995, a
long and pernicious slide that likely means it will be
a generation before Americans regain the peak income
levels reached at the close of the '90s. A report from
the Census Bureau Wednesday said annual household
income fell in 2011 for the fourth straight year to an
inflation-adjusted $50,054.
MORE
DEBT —
Postal service posts big loss as cash runs low. August
9, 2012WSJ
The U.S. Postal Service on Thursday reported a $5.2
billion quarterly loss and said it was nearly out
of cash and likely to exhaust its government credit
line in coming months. The Postal Service's loss for
its third quarter ended June 30 compared with a $3.1
billion loss for the like period a year earlier.
more...
GM
gambles
—
in 2012 ramps up risky subprime auto loans to drive
sales. Near the end of
2010, GM acquired a new captive lending arm, subprime
specialist AmeriCredit. Renamed GM Financial, it has
played a significant role in GM's growth. GM Financial
auto loans to customers with FICO scores below 660
rose from 87% of total loans in Q4 2010 to 93% in Q1
2012. more...
Chief Justice John
Roberts allows the Obama-signed, far-reaching health care laws
to go forward with mandated personal penalties
taxes. June
28, 2012
Supreme Court ruling allows a new federal
"tax" to eventually be imposed on every
not-exempt U.S. citizen who has not acquired health
insurance.
Government actions
result in small banks being sold
—
reducing banking choices. June
18, 2012WSJ
A
growing number of tiny community banks are
deciding it's time to put out the "for
sale" sign. Many executives of these small
lenders are frustrated by costly, new
regulations. Other bankers are throwing in the
towel because their companies have limited
growth prospects in a period of weak loan
demand, low interest rates and thinning profit
margins.
With more than 90
deals announced so far this year, 2012 is
shaping up to be the biggest year—as measured
by number of deals—for bank mergers since
2007, when there were 286 transactions. more...
Stocks near record
levels versus Treasurys. June
1, 2012smartmoney.com
The
10-year Treasury yield, which moves opposite the
bond’s price, plunged to 1.47% by midday
Friday–the latest in a string of record lows.
Investors have rushed to Treasury bonds for
safety from a mounting fiscal crisis in Europe.
Meanwhile, the
S&P 500 index was trading around 1286 at
midday, down 1.9% from Thursday’s close. At
that level, its dividend yield, based on the
past four quarters of company payments, is
2.13%.
The ratio of the
dividend yield to the Treasury yield is 1.45.
That’s close to the high of 1.51, reached near
the end of 2008, following the collapse of
Lehman Brothers. more...
China to start direct
currency trading with Japan. May
29, 2012washingtonpost.com
China and Japan
have agreed to start direct trading of their
currencies from Friday as Beijing moves toward making
the yuan more of a global currency. Until now, China
has only allowed direct trading between the yuan and
the U.S. dollar, under tight limits that have been
loosened only gradually.
The People’s Bank of
China said Tuesday that it had authorized the move to
help improve the foreign exchange market, promote
Sino-Japanese cooperation and develop China’s
capital markets.
Half of U.S. in a
household getting government benefits. May
26, 2012WSJ 49.1%: Percent of the population that lives in
a household where at least one member received some
type of government benefit in the first quarter of
2011, up from 30% in the early 1980s and 44.4% as
recently as the third quarter of 2008.
China now has direct
access to U.S. Treasury. May
21, 2012Reuters
China can now bypass Wall Street when buying U.S.
government debt and go straight to the U.S. Treasury,
in what is the Treasury's first-ever direct
relationship with a foreign government, according to
documents viewed by Reuters.
The relationship means
the People's Bank of China buys U.S. debt using a
different method than any other central bank in the
world.
The other central
banks, including the Bank of Japan, which has a large
appetite for Treasuries, place orders for U.S. debt
with major Wall Street banks designated by the
government as primary dealers. Those dealers then bid
on their behalf at Treasury auctions.
China, which holds
$1.17 trillion in U.S. Treasuries, still buys some
Treasuries through primary dealers, but since June
2011, that route hasn't been necessary. more...
Q.
Since 2010, U.S. unemployment is down
(seems
good),
but % of population employed is not up
(seems bad).
Why?
A.
Select...
1. Numbers are calculated using different factors.
2. U.S. economy has
contracted and many people have stopped looking for a
job.
3. 2012 is an election year.
4. All of the above.
Food Stamp spending
explodes, and then remains high for years. April
19, 2012WSJ
The Congressional Budget Office said Thursday that 45
million people in 2011 received Supplemental Nutrition
Assistance Program benefits, a 70% increase from 2007.
It said the number of people receiving the benefits,
commonly known as food stamps, would continue growing
until 2014. more...
Fannie Mae to ask
Treasury for $4.6 billion more. February
29, 2012 ft.com
Fannie Mae, the US government-controlled mortgage
financier, will ask taxpayers for another $4.6bn after
recording a $2.4bn loss last quarter, the company has
said.
The latest appeal
brings its total request from the US Treasury to $116bn,
of which $20bn is due back to taxpayers in the form of
a dividend as part of its government rescue.
The company, which
together with its corporate cousin Freddie Mac backs
nearly half of all outstanding US home loans, lost
$16.9bn last year, a 20 per cent rise from 2010.
source
1,000th day since the
U.S. Senate has passed a budget.
January 24, 2012 Tuesday,
January 24, will mark the 1,000th day since the U.S.
Senate has passed a budget—an egregious dereliction
of duty on Senate Majority Leader Harry Reid’s (D–NV)
watch. By enacting continuing resolution upon
continuing resolution (short-term measures to keep the
government running, spending money at the current
rate), the Senate has taken a pass on leading, all to
the detriment of the poor and middle class.
The budget process
forces Congress to set priorities to protect the
people’s money and put it to its appropriate use.
Instead, the Democrat-controlled Senate has abdicated
its responsibility. The result? The deficit is
soaring, causing a looming tax burden and injecting
uncertainty into the economy, leaving jobs and
economic growth on the table. It’s no wonder the
U.S. economy’s growth is so tepid. source
Social
Security "burns" billions of dollars in
2009, 2010, 2011... December
2011
The following chart
shows adjusted Payroll Tax revenues minus Benefit
Payments:
Looking at the data
on this basis, you'll see the actual deterioration
that took place in 2011. 2012 will be worse than
2011. Benefits are going to jump by $50B+ next year.
10,000 new people are signing up for checks every
day of the week. Add the fact that every one of the
55 million beneficiaries will be getting 3.6% more
in their checks (COLA adjustment). The revenue side
is a wild card. What will GDP be? If it's around the
2% that is currently anticipated, revenues at SSA
will fall well below plan. A flat economy (+2%)
would translate into a $100B 2012 primary deficit
(payroll receipts minus benefits). A number like
that is not on anyone’s radar today.
The following is a
chart used by the House Finance Committee. It plots
the expectations for net cash drains at SSA. While
there is plenty of red ink in the chart, there is
not nearly enough to describe what is going to
happen. Note that the expectation is for some
improvement in 2011 and relative stability until
2018 when the red ink explodes. On the chart, I
think today we are really at the 2017 level. 2012
will bring us the results depicted in the chart for
2018. more...
The 2011 numbers for
SSA indicate that we are at least five years
ahead of existing thinking on the SSA deficits!
The cumulative SS cash shortfall over the next
decade will add another $1.5 trillion onto
public sector borrowing.
FED
backstops
Europe, again.
The Federal Reserve's
covert bailout of Europe. December
28, 2011
WSJ America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.
The Fed is using what is termed a "temporary U.S. dollar
liquidity swap arrangement" with the
European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the
fall of
2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its
prior largess with foreign
banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a
loan.
The ECB is entangled in an even bigger legal and political mess.
more...
Jobless tap
Social Security Disability
Fund. December
28, 2011
WSJ The
prolonged
economic slump
has fueled a
surge in
applications for
Social Security
disability
benefits, with
many desperate
Americans
seeking refuge
in the program
as a last resort
after their
unemployment
insurance and
savings run out.
Two
new
studies,
one of
them
co-authored
by the
White
House's
top
economist,
show a
correlation
between
when
people
seek
Social
Security
disability
payments
and when
their
unemployment
benefits
are
exhausted.
Some
economists
say that
connection
shows many
people now
view the
system as
an
extended
unemployment
program. more...
A sign of lower
U.S. industrial
activity: Top U.S.
Export is Fuel. December
2011 Measured
in dollars, the
nation is on
pace this year
to ship more
gasoline,
diesel, and jet
fuel than any
other single
export,
according to
U.S. Census data
going back to
1990. It will
also be the
first year in
more than 60
that America has
been a net
exporter of
these fuels. more...
Fed Now Largest Owner of U.S.
Government Debt
— Surpassing China. November
16, 2011
At
the close of
business on
Tuesday, the
debt of the
federal
government exceeded
$15 trillion
for the first
time--with the
largest single
owner of the
publicly held
portion of that
debt being the
Federal Reserve.
Over
the past year,
as the Federal
Reserve
massively
increased its
holdings of U.S.
Treasury
securities and
entities in
China marginally
decreased
theirs, the Fed
surpassed the
Chinese as the
top owner of
publicly held
U.S. government
debt.
In
its latest
monthly report,
the Federal
Reserve said
that as of Sept.
28, it owned $1.665
trillion in
U.S. Treasury
securities. That
was more than
double the $812
billion in U.S.
Treasury
securities the
Fed said it
owned as of
Sept. 29, 2010.
more...
White
House eliminates
insurance
program for
long-term care. October
15, 2011 Known
as the Community
Living
Assistance
Services (CLASS)
Act, the program
was intended to
be purely
voluntary and
open to all
working
Americans. It
would have
provided a basic
lifetime benefit
of a least $50 a
day in the event
of illness or
disability, to
be used to pay
for even
nonmedical
needs, such as
making a house
wheelchair-accessible
or hiring a home
caregiver to
assist with
basic
tasks.
The
program was to
be entirely
self-financed
with the
premiums
participants
paid. Obama
officials said
that presented
them with a
problem: If they
designed a
benefits package
generous enough
to meet the law’s
requirements,
they would have
had to set
premiums so high
that few healthy
people would
enroll. And
without a large
share of healthy
people in the
pool, the CLASS
plan would have
become even more
expensive,
forcing the
government to
raise premiums
even higher, to
the point of the
program’s
collapse.
“I
feel justified
and vindicated,”
Gingrey said.
Like other
Republicans, he
predicted that
this would be
the first thread
in the
health-care law
to unravel. “The
bottom line is:
As people start
to understand
this bill, you
are going to see
more and more of
a domino effect,”
he said. more...
FDIC's
bank closings in
2011.
About
1,000 U.S. banks
and savings
institutions
have disappeared
since the end of
2007, leaving
7,513
FDIC-insured
institutions as
of June 30.
During that
period, 396
banks failed and
about 600
disappeared
through mergers
or acquisitions.
Camden
Fine, president
of the
Independent
Community
Bankers of
America, a trade
group, predicted
another 1,000 to
1,500 banks will
vanish between
now and the end
of 2015. more...
Food
stamp use rises
to record 45.8
million in 2011.
Nearly 15% of
the U.S.
population
relied on food
stamps in May,
according to the
United States
Department of
Agriculture. The
number of
Americans using
the government's
Supplemental
Nutrition
Assistance
Program (SNAP)
-- more commonly
referred to as
food stamps --
shot to an
all-time high of
45.8 million in
May, the USDA
reported. That's
up 12% from a
year ago, and
34% higher than
two years ago. more...
US
loses AAA credit
rating. August
5,
2011Bloomberg Standard
& Poor’s
downgraded the
U.S.’s AAA
credit rating
for the first
time, slamming
the nation’s
political
process and
criticizing
lawmakers for
failing to cut
spending enough
to reduce record
budget deficits.
Foreclosure
woes fuel wider
loss at Fannie
Mae
Red ink
continues to
flow at Fannie
Mae as the
mortgage finance
company
struggles to
digest a glut of
defaulted
mortgages and
foreclosed
properties.
Fannie posted a net
loss of $2.9
billion for
the second
quarter, up from
a year-ago loss
of $1.2 billion.
The company has
now reported
losses in 15 of
the last 16
quarters and
must ask the
U.S. for another
$2.8 billion in
bailout funds
after it makes
quarterly
dividend
payments to the
Treasury. more...
Post
Office losses
mount to $3.1B
for quarter.
The Postal
Service said
Friday it lost
$3.1 billion in
the April
through June
period and could
be forced to
default on
payments due to
the federal
government when
the fiscal year
ends in
September.
Losses for the
year come to
$5.7 billion. more...
"The fact
that we are here today to debate raising America’s debt
limit is a sign of leadership failure. It is a sign that the
U.S. Government can’t pay its own bills. It is a sign that
we now depend on ongoing financial assistance from foreign
countries to finance our Government’s reckless fiscal
policies." -- Senator Obama on the U.S. Senate floor
on March 16, 2006
July
22, 2011
WSJ Fiat
acquires majority
share
of Chrysler. more...
Job
search stretches
past a year for
millions. more...
Government
weighs landlord
role to ease
housing slump. more...
Government
to lose $14
billion of auto
bailout funds. June
1, 2011AP
The Obama
administration
said Wednesday
that the
government will
lose about $14
billion in
taxpayer funds
from the bailout
of the U.S. auto
industry.
Chrysler
restructures
debt deal. May
17, 2011ft.com
Chrysler,
the US carmaker
run by Fiat, has
restructured a
landmark debt
refinancing
meant to
distance itself
further from its
bankrupt past
and pave the way
for the Italian
company to
solidify its
control.
The
refinancing
includes
institutional
loans, which are
arranged by
banks and
syndicated to
investors, and
junk bonds to
replace
high-interest
government loans
associated with
its
restructuring
two years ago.
The
market for risky
corporate debt
has rallied for
months as
investors look
for better
returns and
safeguards
against rising
rates.
Institutional
loans pay
interest that
floats over
three-month
Libor.
US Postal Service posts $2.6 billion loss for first half of fiscal 2011. May 10, 2011govexec.com
The U.S. Postal Service
has lost $2.6 billion so far this year and will require significant
help from Congress to get back on track, officials said on Tuesday.
During a board meeting, Postal Service
leaders reported large losses through the second quarter of 2011. USPS
lost $1.9 billion in that same period in fiscal 2010. The agency
continues to face long-term financial challenges and despite significant
cost reductions will reach its statutory borrowing limit by the end of
the fiscal year and default on a number of obligations to the federal
government, officials said.
Chief Financial Officer Joseph Corbett said the Postal Service does not
expect to meet its cash obligations this year, including a $5.5 billion
prepayment to its retiree health benefits fund, due Sept. 30. A $2.8
billion prefunding requirement for these benefits, along with a $700
million workers' compensation liability, contributed to the $2.6 billion
fiscal 2011 loss.
Fannie Mae to ask $8.5 billion of Treasury. May 7, 2011FT.com Fannie Mae, the troubled mortgage finance company,
on Friday reported a return to losses for the first quarter as it
announced it would seek an additional $8.5 billion from the US Treasury.
The
Washington DC company, which finances almost half of all US mortgages,
reported the net worth of its assets as minus $131.1 billion at the end of
March, and indicated that it was unlikely ever to earn more than the dividends owed to the Treasury on preferred stock issued as part of its bail-out.
US
government comfortable with GM IPO pricing, and
the resulting large taxpayer loss. November
18, 2010Reuters
US Treasury is
reducing its stake in GM through the initial share
sale from 61 percent to 37 percent at minimum. It
could sell more shares initially to bring down
taxpayer exposure to 33 percent, depending on
whether an overallotment option is exercised. Ron
Bloom, the
administration's point man on auto restructuring,
said GM has done the right thing and pricing of
$33 per share is a "fair deal" even
though the partial sale represents a loss of
roughly $9 billion on taxpayers' original
investment.
Fed
orders 2nd round of stress tests for top 19 banks. November
18, 2010WSJ
The Federal Reserve plans to scrutinize the
nation's top 19 banks for a second time, the
latest indication federal regulators are seeking
to toughen oversight of the nation's biggest
financial institutions. The Fed said the 19
largest bank-holding companies must submit capital
plans by early next year showing their ability to
withstand losses under a set of conditions to be
determined by the central bank, including
"adverse" economic conditions and
continuing real-estate-related woes. The banks are
the same that underwent highly publicized
"stress tests" at the height of the
financial crisis in early 2009.
Fannie
Mae needs an extra $2.5 billion from the U.S.
Treasury after a third quarter loss on foreclosure
and other credit expenses. November
5, 2010Reuters Fannie Mae
said credit-related expenses, which include
provisions for losses and foreclosed property
expense, rose to $5.6 billion in the
quarter from $4.9 billion in the previous period.
Among factors, it lowered the value of repossessed
homes it owns, it said. The company also said it
expected credit losses would rise due to the pause
in foreclosures after some loan servicers found
"deficiencies" as they processed
delinquent borrowers.
US
MONETIZING DEBT, AGAIN: Federal
Reserve will buy $600 billion of U.S. government
bonds. November
4, 2010WSJ
The Federal Reserve, in a dramatic effort to rev
up a "disappointingly slow" economic
recovery, said it will buy $600 billion of
U.S. government bonds over the next eight months
to drive down interest rates and encourage more
borrowing and growth.
In
essence, the Fed now will print money to buy as
much as $900 billion in U.S. government
bonds through June—an amount roughly equal to
the government's total projected borrowing needs
over that period.
This
is the Fed's second experiment with a big
bond-buying program. Between January 2009 and
March of this year, the central bank purchased
roughly $1.7 trillion worth of government and
mortgage bonds. That move also sparked worries
about inflation, which so far hasn't materialized.
The bond-buying program is known in some corners
as quantitative easing.
GM could be free of taxes for years! November
3, 2010WSJ
General Motors Co.
will drive away from its U.S.-government-financed
restructuring with a final gift in its trunk: a
tax break that could be worth as much as $45
billion.
GM, which plans to
begin promoting its relisting on the stock
exchange to investors this week, wiped out
billions of dollars in debt, laid off thousands of
employees and jettisoned money-losing brands
during its U.S.-funded reorganization last year.
Now it turns out,
according to documents filed with federal
regulators, the revamping left the car maker with
another boost as it prepares to return to the
stock market. It won't have to pay $45.4
billion in taxes on future profits.
The
largest number of bank failures in nearly 20 years
has eliminated jobs, accelerated a drought in
lending and left the industry's survivors with
more power to squeeze customers. Some 279 banks
have collapsed since Sept. 25, 2008, when
Washington Mutual Inc. became the biggest bank
failure on record. [source]
The
government's $700 billion financial bailout
officially ends Monday, but some banks are having
a hard time letting go with more than 600 banks
sitting on about $65 billion in government bailout
funds. In some ways, the end is largely symbolic
and based on the resistance of some banks to
repay, doesn't actually mean the end of TARP. The
expiration means the Treasury can't fund any new
programs but is allowed to continue overseeing
existing investments. [source]
Record low Treasury
two-year note yield of 0.441%.
September 27, 2010WSJ
The U.S. sold $36 billion in two-year notes at a
record low yield of 0.441% Monday. The successful
auction served as evidence of the continuing solid
demand for low-risk U.S. government debt, as
investors, still concerned about the recovery in
the U.S. and abroad, continue to pour money into
Treasurys. Demand for Treasurys intensified last
week after the Federal Reserve highlighted the
risk of deflation and signaled it is ready to
provide more help to the economy if needed. Many
investors are even more persuaded the Fed will
launch another large-scale bond-buying program
this year, purchasing Treasurys, which has left
the government bond market well bid.
US
federal
government swooped in to stabilize credit-union
sector.
September 25, 2010WSJ
Two years after the
peak of the financial crisis, the federal
government swooped in to stabilize a crucial part
of the credit-union sector battered by losses on
subprime mortgages.
Regulators
announced Friday a rescue and revamping of the
nation's wholesale credit union system,
underpinned by a federal guarantee valued at $30
billion or more. Wholesale credit unions don't
deal with the general public but provide essential
back-office services to thousands of other credit
unions across the U.S. The majority of retail
credit unions are sound, but they will have to
shoulder the losses through special assessments
over the next decade.
Friday's
moves include the seizure of three wholesale
credit unions, plus an unusual plan by government
officials to manage $50 billion of troubled assets
inherited from failed institutions. To help fund
the rescue, the National Credit Union
Administration plans to issue $30 billion to $35
billion in government-guaranteed bonds, backed by
the shaky mortgage-related assets.
Outstanding
construction loans backing office buildings,
shopping malls and other kinds of commercial real
estate fell to a total of $221 billion in the
second quarter of 2010, down from a peak of $298
billion in early 2009, according to data firm
Foresight Analytics. The portion of those loans 30
days or more past due is up to 15.6%, nearly four
times the rate two years ago. [source]
Almost
all new mortgages "guaranteed" by US
government since 2008.
About
95% of mortgages today are backed by Fannie
Mae, Freddie
Mac, or other government agencies. Many
investors believe mortgage markets won't ever
again function without some form of government
backstop.
FDIC finds 829 U.S.
banks at risk.
September 1, 2010WSJ
The Federal
Deposit Insurance Corp. said Tuesday that 829 of
the nation's roughly 7,800 banks were on its
"problem list" at the end of June, up
from 775 at the end of the first three months of
the year. Already 118 banks have failed this year,
well ahead of the pace set last year when 140 were
seized by regulators.
US government to go
further into debt to help keep some states solvent —
Obama signs $26 billion aid package.
August 10, 2010WSJ
President
Barack Obama signed into law a package of $26
billion in aid for state and local
governments, following House approval of the
package Tuesday.
The new law
includes limits on foreign tax credits that will
cost U.S. multinational firms nearly $1 billion a
year in additional taxes, according to the
official estimate from Congress's Joint Committee
on Taxation.
House Speaker Nancy
Pelosi (D., Calif.) called back into session
lawmakers who had just begun their six-week-long
summer recess in order to cast the vote. Democrats
see the legislation as politically important for
them, as it benefits key constituencies, including
public-sector workers and labor unions. But to pay
for it, they handed a hefty tax bill to U.S.
companies with units overseas that have been able
to pay a lower corporate income-tax rate on
profits derived from their foreign businesses.
The House voted
247-161 to approve the legislation, in a vote that
was almost exclusively along party lines, with
just two Republicans joining all but three
Democrats in favor of the measure.
The legislation
will provide $16 billion in aid to help states pay
rising Medicaid costs.
Current federal
funding for the expansion of the program, which
provides health care for the poor, expires at the
end of the year. The law will continue the funding
through the first six months of 2011.
The bill will steer
a further $10 billion to local governments to help
them avert layoffs of teachers and other
public-sector workers such as firemen and police
officers.
The legislation's
full $26 billion cost is offset by tax increases
or spending cuts elsewhere in the federal budget.
The foreign-tax credit limits will increase
government revenues by $9.6 billion over the next
10 years. The bill also ends early an increase in
food-stamp payments that was part of
economic-stimulus legislation.
Postal Service
Reports $3.5 Billion Loss
August 5, 2010WSJ
The U.S. Postal
Service's fiscal-third-quarter loss widened to
$3.5 billion as mail volume fell 1.7% and
operating expenses increased, and a potential cash
crunch looms.
The Postal Service
has lost money each year since 2007, while mail
volume has declined 20% since then, hit by the
economy's downturn and the growing use of email
and online bill payment. The problem is compounded
by high fixed costs for the Postal Service.
Postal Service
Chief Financial Officer Joseph R. Corbett said
Thursday that liquidity remains a concern because
it is uncertain whether it can both meet a $5.5
billion payment to its retiree health fund at the
end of September and "retain sufficient
liquidity" into the next fiscal year.
Despite cost cuts
of more than $10 billion in the past three years,
the Postal Service last month proposed raising the
price of a first-class stamp in what would be the
seventh increase in a decade.
The Postal
Service's $3.5 billion loss for the quarter ended
June 30 compares with a $2.4 million loss a year
earlier. Its year-to-date loss widened to $5.4
billion from $4.7 billion.
Treasurys Rally;
Two-Year Yield Hits Record Low
August 4, 2010WSJ
Treasurys and
mortgage-backed securities gained Tuesday as weak
economic data further fanned expectations that the
Federal Reserve may need to restart its asset
purchases to support the economy. The two-year
yield was pushed down to a record low of 0.515%
at one point during the day, as the price rose,
after surprisingly weak reports on consumer
spending, pending home sales and factory orders.
The Fed has already
pledged to keep rates ultra-low for an extended
period which has helped keep Treasurys yields low
and borrowing costs down for consumers and
corporations.
July
2010 Obama
Declares Auto Bailout a Success
President Barack Obama on Friday declared the
controversial bailout of the U.S. auto industry a
success in visits to Detroit auto plants that came
weeks before General Motors Co. is expected to
take a critical step toward an IPO.
Public and investor
support of the U.S. government's $60 billion
rescue of GM and Chrysler LLC is important to
Detroit auto makers as they prepare to make a
return to public markets that will rely on solid
sales and Wall Street support.
Also, public
support for the bailout is key for the Obama
administration, worried that Democrats who
supported the unpopular bailout could be ousted in
November elections. [source]
At 'Old GM,' Bad Assets Linger On
A year into the process of shedding GM's "bad
assets," only one former factory and a few
other properties have found a second life.
The
vast majority of the auto maker's closed offices,
decrepit plants and parts depots that were left
behind in bankruptcy court remain on the market or
are slated for demolition. Some of the properties
are contaminated with toxic waste; others are
cavernous structures way too big for alternative
uses. Few sport good locations.
It
could take years to dispose of the 200 remaining
properties, the detritus of one of the country's
biggest-ever bankruptcies.
Washington
last year pumped $50 billion into General Motors
to prevent the car maker's collapse and decreed
that its "good" assets should be split
from the "bad" assets. The U.S. steered
GM through a quick bankruptcy sale that sent its
best assets to a new, leaner company, now 61%
owned by U.S. taxpayers.
The
rest of the assets were left in bankruptcy court
with "Old GM," a shell of the
once-dominant auto maker, renamed Motors
Liquidation Co. [source]
Deflation Worries
Stir as Consumer Confidence Slips July
2010 Consumer prices fell
in June for the third straight month, underscoring
the continuing risk of deflation as high
unemployment and weak consumer demand keep prices
under pressure.
Fears about the
economy slowing in the second half of this year,
with little sign of employment picking up rapidly,
add to the risk of continued downward pressure on
prices. [source]
Historic financial
overhaul signed to law by Obama July
21, 2010AP Reveling
over a new milestone in his presidency, a
triumphant Barack Obama on Wednesday signed into
law the most sweeping overhaul of lending and
high-finance rules since the Great Depression.
Firms
have been poring over the massive bill,
anxious to assess its most immediate
impact. Credit rating firms, for instance,
say they will no longer allow the issuers
of debt-backed securities to put their
ratings for them in public sale documents,
wary of a provision in the law that makes
it easier to sue ratings agencies.
Dodd-Frank
Wall Street Reform and Consumer Protection
Act
CBO’s Long Term
Budget Outlook - July 1, 2010 July
1, 2010CBO
Release As part
of the Long-Term Outlook, CBO (Congressional
Budget Office) has updated its health care
spending projections to reflect the
recently-passed health care reform legislation.
The legislation makes a number of changes with
major budgetary consequences, including expanding
Medicaid, providing insurance subsidies, enacting
changes to cut the level of Medicare spending,
making changes to reduce the growth of Medicare,
and raising new revenues in a variety of ways.
Regardless
of what effect health reform actually has, the
long-term budget remains on an unsustainable path.
If we simply continued on our current policy path
through 2020, our debt will grow to 87 percent of
GDP in that year, and to unprecedented levels soon
after. Under any scenario, Social Security will
grow by 1 to 1.5 percent of GDP and federal health
spending will grow many times more.
Obama
launches 10,000th recovery project in Ohio. June
18, 2010The
White House Blog
President
Barack Obama launched Friday a road improvement
project in Ohio he said was the 10,000th recovery
initiative since the US economic stimulus plan
kicked in early last year.
"Today, I
return to Columbus to mark a milestone on the road
to recovery: the 10,000th project launched under
the Recovery Act," Obama said, referring to
the 787-billion-dollar stimulus program he
launched on February 17, 2009. [source]
FHFA
Directs Delisting of Fannie Mae and Freddie Mac
Stock from New York Stock Exchange June
16, 2010FHFA
NEWS RELEASE
The Federal
Housing Finance Agency has directed Fannie Mae and
Freddie Mac (the Enterprises), operating in conservatorship,
to delist their common and preferred stock from
the New York Stock Exchange and any other national
securities exchange. Once the delisting is
completed, each Enterprise’s common and
preferred stock is expected to be quoted on the
Over–the-Counter Bulletin Board.
Lost
decade for US economic growth? June
14, 2010WSJ
If 2008 was the
year of sheer panic, 2010 is shaping up into one
of stubborn, slow-burning angst. There is a
feeling that a lot remains unfixed in the economy,
even though governments have spent heavily and
central banks have flooded their economies with
easy money. If the forces of deflation and
deleveraging still aren't neutralized, what can be
done to stop them? Indeed, might the only workable
economic approach be to let these forces play
themselves out? The case for doing this can
arguably be seen in the banking system, where
credit is contracting, despite government help.
Bank loans and leases have fallen a brutal 10.5%
since the end of 2008, adjusted for loans brought
onto banks' balance sheets because of an
accounting-rule change. They are even down 3.25%
since the end of 2009.
Bad
news for Social Security at mid-year 2010.
There is enough published information from the SSTF
to make some observations for the first six months
of 2010. The numbers are going in the wrong
direction. Receipts are down across the board
while expenses keep rising. This chart looks at
the Jan.-June results for 2008-2010. These lines
were not expected to cross for at least another
five years. This is the cost of the protracted
recession and the failure of the economy to
generate new jobs. [source]
U.S. April budget
deficit $83 billion. May
12, 2010
The U.S. government
ran a budget deficit in April of $83 billion, the
Treasury Department reported Wednesday, as
individual income tax receipts declined sharply.
April marked a record 19th consecutive monthly
budget deficit. A year ago in April, the deficit
was $20.9 billion.
April is usually a
surplus month as federal taxes are due but the
recession has hit tax receipts for the past two
years. The Obama administration projects a deficit
of $1.6 trillion in the current fiscal year,
compared with $1.4 trillion in the prior
year. [source]
Fannie Mae needs
$8.4 billion more. May
11, 2010WSJ
Fannie Mae asked the
U.S. government for an additional $8.4 billion
in aid after posting an $11.5 billion net loss for
the first quarter, the latest sign that the
bailout of the mortgage investor and its main
rival, Freddie Mac, is likely to be the most
expensive legacy of the U.S. housing-market bust.
The company has now
racked up losses of nearly $145 billion, or
nearly double its profits for the previous 35
years.
The government's
tab for Fannie will climb to $84 billion, while
Freddie's stands at $61 billion. The government
took control of both companies in 2008 through a
legal process known as conservatorship
as rising losses threatened to wipe out their thin
capital reserves.
Fannie's losses
have surpassed Freddie's because its $3 trillion
book of loan guarantees is nearly one-third larger
than Freddie's. Delinquencies are higher at Fannie
because the firm more aggressively dialed up its
appetite for riskier loans at the peak of the
housing boom.
Fannie, Freddie and
the Federal Housing Administration provided
guarantees or insurance for 96.5% of the
home mortgages that originated in the first
quarter, according to Inside Mortgage Finance, a
trade publication. The companies also play a
central role in the Obama administration's
loan-modification effort designed to avert
foreclosures.
Losses at Fannie
and Freddie continue to grow because the firms
must set aside more capital to cover anticipated
losses as mortgage delinquencies rise. The
Treasury kicks in more capital every quarter if
revenues can't meet those financial needs. Unlike
many financial companies, the firms are exposed to
a single asset class, holding nearly $5.5 trillion
in mortgages and loan guarantees.
Fannie's capital
hole would have risen by $3.3 billion without new
accounting rules that took effect Jan. 1. The
firm's losses were driven by deterioration in its
$3 trillion book of loan guarantees, which
accounted for a $12.5 billion loss.
But the terms of
the government conservatorship, which require
Fannie and Freddie to pay an annual 10% dividend
on their Treasury draw, could create an incentive
to reserve more conservatively. Fannie had to pay
the government $1.5 billion in dividends last
quarter. "They don't want to raise the
reserve levels because in a sense it doesn't
matter and it could be perversely damaging to
them," says Mr. Sanders.
In its filings
Monday, in the coming months Fannie said it wasn't
likely to repay its debt to the Treasury for the
"indefinite future."
New-home sales down
as a percentage of total home sales, as massive
foreclosures occur. April
23, 2010WSJ
New
homes tend to be more expensive in a
market with plenty of inventory. To stay
competitive, home builders have been
cutting the size and cost of properties -
accounting for more than half of the
builder's sales in its quarter ended in
February.
The typical
new home sold for $220,500 in February,
compared with $165,000 for a pre-owned
one. The inventory of cheaper homes looks
set only to grow. Foreclosure filings in
March hit a record of about 367,000,
according to RealtyTrac. And there are
about 5.5 million additional properties
in the foreclosure pipeline, according
to Barclays Capital. Government programs
to keep people in their homes and current
on mortgages have had only mixed success.
States skip pension
payments, delay day of reckoning.
April
9, 2010WSJ State
governments from New Jersey to California that are
struggling to close budget deficits are skipping
or deferring payments to already underfunded
public-employee pension plans. The moves could
help ease today's budget pressures, but will make
tomorrow's worse.
New Jersey's
governor, a fiscal conservative, has proposed not
making the state's entire $3 billion contribution
to its pension funds because of the state's $11
billion budget deficit. Virginia has proposed
paying only $1.5 billion of the $2.2 billion
required pension contribution. Connecticut
Republican Gov. M. Jodi Rell is deferring $100
million in payments this year to the pension fund
for state employees to help close a $518 million
budget gap
"Yes it's
wrong," said New Jersey Republican State Sen.
Robert Singer. "But the governor "has no
other choice."
With unemployment
still at a severe high, a majority of states have
drained their jobless benefit funds, forcing them
to borrow billions from the federal government to
help out-of-work Americans.
About 39.4 million
Americans, the most ever, received food stamps in
January, the government said. The number of
recipients was up 22% from a year earlier,
according to the U.S. Department of Agriculture.
The total of Americans getting the subsidy has hit
records for 14 consecutive months.
Beginning Oct. 1,
an average of 40.5 million people are expected to
get food stamps each month this year, rising to
43.3 million in 2011, according to White House
estimates. [source]
Massive US government
involvement in another key sector of the
economy. April, 2010WSJ
Treasury Secretary
Timothy Geithner recently noted in congressional
testimony, the government is backing 95% of the
housing-finance market, between Fannie Mae,
Freddie Mac and other federal agencies.
Fannie and Freddie
alone account for 70% of new single-family
mortgages, up from 40% in 2006.
With stroke of a
pen, Obama signs health reform into law —
projected cost of $940
billion. March
23, 2010 Cuban
revolutionary leader Fidel Castro declared passage
of American health care reform "a
miracle" and a major victory for Obama's
presidency, but couldn't help chide the United
States for taking so long to enact what communist
Cuba achieved decades ago.
US housing starts
remain very low.
Sales of new homes in the
US fell to their lowest level on record in
February. The seasonally adjusted annual rate of
308,000 units in February was the lowest since the
Commerce Department began keeping statistics in
1963.
Four more banks
fail, depositors suffer. March
5, 2010 Regulators
shuttered four U.S. banks on Friday, bringing the
nation's tally of bank and thrift failures to 26.
The Federal Deposit Insurance Corp. was unable to
find buyers for two of the failed institutions,
leading to losses for depositors who had balances
exceeding the agency's insurance limits. [source]
Fannie Mae needs
another $15.3 billion from US government. February
26, 2010WSJ On Friday,
Fannie Mae said the fourth-quarter loss resulted
in a net worth deficit of $15.3 billion as
of Dec. 31. As a result, the company said the
Federal Housing Finance Agency on Thursday
submitted a request for that amount from the
Treasury on the company's behalf. It is seeking
the funds prior to March 31, and the request would
put the total received by the government to $76.2
billion.
Fannie and Freddie
Mac were placed under conservatorship
in 2008 to prevent potential implosions at the
height of the credit crisis.
Q.
Unstable
US banks need more dollars — does FED borrow or
print?
A.
Both. After massive US debt limit
increase, Treasury to give FED $200 billion of
borrowed money to slow down the printing
of money — needed
for buying mortgage-backed securities which
destabilized the US banking system. February
24, 2010WSJ The
Treasury said it will borrow $200 billion
and leave the cash proceeds on deposit with the
Federal Reserve, reviving a program that will make
it easier for the Fed to raise interest rates when
the time comes.
The Treasury
borrowing is part of an unusual dance the Fed has
undertaken to manage a balance sheet that has
grown large and complex.
The Treasury
initiated the program—the Supplemental Financing
Program—during the peak of the financial crisis
in 2008 to get cash to the Fed to fund programs
that pumped credit into the financial system. The
Treasury reduced the program last year as its own
borrowing authority approached legal limits. Now
that Congress has raised the government debt
limit, Treasury was able to revive it.
In 2008, as it
reduced short-term interest rates nearly to zero,
the Fed used the Treasury deposits to fund
interventions without printing money. As the
economic outlook worsened and the size of Fed
interventions grew, the Fed began printing
money,
or, technically, crediting the electronic accounts
of banks with funds when it made loans or bought
securities from them.
Revival of the
Treasury program makes it possible for the Fed to
avoid printing more money, a step that could lead
to inflation, at it develops exit strategies from
its interventions.
As of Feb. 10, the
Fed had pumped more than $1 trillion into the
financial system. That sum had the potential to
grow in coming weeks as the Fed completed plans to
buy $1.25 trillion of mortgage-backed
securities. As of mid-February, the Fed's holdings
of mortgage-backed securities stood at $1.025
trillion.
$400 million for
food financing in US. February
19, 2010Treasury
Press Release The Obama
Administration today released details of an over $400
million Healthy Food Financing Initiative,
which will bring grocery stores and other healthy
food retailers to underserved urban and rural
communities across America. The initiative was
announced today in Philadelphia by Treasury
Secretary Tim Geithner and Agriculture Secretary
Tom Vilsack.
The Healthy Food
Financing Initiative will promote a range of
interventions that expand access to nutritious
foods, including developing and equipping grocery
stores and other small businesses and retailers
selling healthy food in communities that currently
lack these options.
Record high
long-term unemployment in US. February
2010 The
position of the already unemployed is looking more
and more desperate. The average length of time
jobless people have been out of work is at a
record high of 30.2 weeks, and that doesn’t even
include people who want jobs but have given up
looking for them. [source]
US debt limit increased
again.
President Obama signs $1.9 trillion debt limit
increase. February
12, 2010
President Obama signed
into law February 12 a bill that would increase
the federal debt limit by $1.9 trillion to a total
of $14.3 trillion. The legislation also
included a restoration of the “pay-as-you-go”
provision of congressional budgeting that requires
new spending proposals in Congress to be matched
by cuts or tax increases in order to prevent
accelerating the already out-of-control federal
budget deficit.
The legislation —
which amounts to increased borrowing of more than $15,000
for every household in America — will only
account for scheduled borrowing for a little more
than a year. The current annual deficit for fiscal
2010 is expected to be nearly $1.6 trillion, and
Obama introduced a budget calling for an
additional $1.3 trillion deficit in fiscal
2011. [source]
US Debt
Limit was increased from $12.394 trillion to $14.294
trillion
effective February 12, 2010. [source]
Senate proposes
increasing U.S. debt limit by $1.9
trillion. January
21, 2010Bloomberg
The U.S. debt limit
would be raised by $1.9 trillion to $14.29
trillion under an amendment proposed in the
Senate. The chamber began debate yesterday on
raising the debt ceiling for the fifth time in two
years after lower tax revenue from the recession
and higher stimulus spending boosted the
calendar-year budget deficit to an all-time high
last year. The proposed ceiling would probably
allow the Treasury to continue its borrowing until
next year, said Michael Feroli, an economist at
JPMorgan Chase & Co. in New York.
Congress passed a
short-term increase in the debt
limit to $12.39 trillion last month after a
group of senators, led by Budget Committee
Chairman Kent Conrad of North Dakota, refused to
vote on a longer-term extension unless Congress
created a commission to study deficit reduction.
The Obama administration reached a tentative
accord with congressional Democrats to create a
version of the panel by executive order, House
aides said.
Growing number
of commercial real estate loans past due in 2009.
A record 20
million-plus people collected unemployment
benefits at some point in 2009, a year that ended
with the jobless rate at 10 percent.
Budget-strapped
state governments will struggle with higher
spending on unemployment insurance in 2010. States
are required to set aside money in a trust fund to
pay jobless benefits, but 25 have already run
through their funds and have borrowed $26
billion from the federal government.
The Labor
Department has projected that 40 states may need
to borrow as much as $90 billion by 2012.
Thirty-five states
have already increased the unemployment insurance
taxes they levy on employers for 2010, according
to the National Association of State Workforce
Agencies. Some are also cutting benefits as they
try to reduce the size of budget shortfalls that
are expected to reach $180 billion in the coming
fiscal year. [source]
-
- - - - - - - - -
American
Recovery and Reinvestment Act of 2009 The Recovery Act was signed into
law by President Obama on February 17th,
2009. It was an unprecedented effort to
jumpstart the economy and create or save
millions of jobs.
US debt limit increased
again.
December 28, 2009
US Debt Limit
was increased from $12.104 trillion to $12.394
trillion effective December 28, 2009. [source]
The
Treasury sold more than $2.1 trillion in
notes and bonds this year, more than in
the previous two years combined, to fund a
widening budget shortfall and finance
programs to rescue the banking system and
support the economy.
Next year,
the Treasury is expected to sell about
$2.45 trillion in notes and bonds, setting
another record. But yields may need to
rise to entice buyers, particularly as the
economic recovery gathers pace. [source]
US
Treasury will supply "unlimited" funds
to cover cumulative Fannie Mae and Freddie Mac
losses.
December 24, 2009FED
Press Release
At the time the Federal Housing Finance Agency (FHFA)
placed Fannie Mae and Freddie Mac into conservatorship
in September 2008, Treasury established
Preferred Stock Purchase Agreements (PSPAs) to
ensure that each firm maintained a positive net
worth. Treasury is now amending the PSPAs to allow
the cap on Treasury's funding commitment under
these agreements to increase as necessary
to accommodate any cumulative reduction in net
worth over the next three years.
Treasury is making
two additional changes to the PSPAs. Treasury will
delay setting the Periodic Commitment Fee by one
year to December 31, 2010. Treasury will also make
technical changes to the definitions of mortgage
assets and indebtedness to make compliance with
the covenants of the PSPAs less burdensome and
more transparent in light of impending accounting
changes.
US Automakers
Continue to Shrink: Ford offers buyouts to 41,000
UAW workers.
December
21, 2009Reuters
Ford Motor Co said
it is offering its 41,000 U.S. factory workers
buyouts and early retirement offers in a bid to
reduce its payroll costs as it aims to return to
profit by 2011. Ford workers have until late
January to accept the offer, which include payouts
of up to $70,000 cash for newer hires to $60,000
cash for veterans already eligible for retirement.
"Despite a
strengthening in our business, we still have a
surplus in employees," said Ford
spokesman Mark Truby. Ford did not provide a
target for how many workers it expected would take
the offers.
While Ford was the
only U.S. automaker to have avoided bankruptcy in
the past year, its relative success has
complicated efforts to win concessions from its
major union. Last month, UAW workers
overwhelmingly rejected a proposed cost-cutting
deal for Ford that would have changed the terms of
a labor contract which runs until 2011.
Under the terms of
the new buyouts, Ford workers with at least a year
of experience will be eligible for a payout of
$50,000 plus a new car voucher worth $25,000 or an
additional cash payment of $20,000. Workers
eligible for retirement will be able to draw
pension payments and take either the $25,000
voucher toward a new Ford vehicle or the $20,000
payment. In addition, retirement eligible workers
with a skilled trade can receive $40,000 cash.
Other workers would be paid $20,000 as an
incentive to retire. Workers who accept the offer
would leave the company between February 1 and
March 1, Truby said.
Michigan, where the
unemployment rate was 14.7 percent in November,
has the highest jobless rate in the United States.
Over the past
decade, the U.S. auto sector has seen employment
drop by over half to 547,500 workers as of
June, according to government data.
By reducing the
number of older workers on their payroll, all
three U.S. automakers aim to create room to hire
new workers at sharply reduced wages when they
need to increase production. New UAW hires at the
Detroit automakers will make $14 per hour compared
with an average about $28 per hour for older
workers under a round of concessions granted by
the union.
FDIC expanding to
handle more bank failures in 2010.
December
15, 2009FDIC
Press Release
The Board of
Directors of the Federal Deposit Insurance
Corporation (FDIC) today approved a $4.0 billion
Corporate Operating Budget for 2010. The Board
also revised the current 2009 budget to $2.6
billion.
"The 2010
budget is a prudent and measured response to
current conditions in the banking industry,"
said FDIC Chairman Sheila Bair. "It will
ensure that we are prepared to handle an
even-larger number of bank failures next year, if
that becomes necessary, and to provide regulatory
oversight for an even larger number of troubled
institutions."
The 2010 operating
budget will increase more than $1.4 billion (55%)
from 2009, primarily due to the cyclical nature of
bank failures. The receivership funding component
of the 2010 budget, the vast majority of which is
funded by receiverships, will be $2.5 billion, up
from $1.3 billion in 2009. This includes funding
for the continuing work associated with bank
failures that have occurred over the past two
years. The budget also contains contingency
funding for the possible continuation of an
elevated number of bank failures in 2010.
In conjunction with
its approval of the 2010 operating budget, the
Board also approved an authorized 2010 staffing
level of 8,653 employees, up from 7,010 in 2009.
US Treasury extends
TARP until October 2010.
December
9, 2009Treasury
Press Release
The U.S. Department
of the Treasury released the text of identical
letters sent today from Secretary Tim Geithner to
Speaker Nancy Pelosi and Senator Harry Reid
outlining the Administration's exit strategy for
the Troubled Asset Relief Program (TARP)
established by the Emergency Economic
Stabilization Act of 2008 (EESA).
...pursuant to
Section 120(b) of EESA, I certify that I am hereby
extending the authority provided under the Act to October
3, 2010. This extension is necessary to assist
American families and stabilize financial markets
because it will, among other things, enable us to
continue to implement programs that address
housing markets and the needs of small businesses,
and to maintain the capacity to respond to
unforeseen threats, as described above.
While we are
extending the $700 billion program, we do not
expect to deploy more than $550 billion. We also
expect up to $175 billion in repayments by the end
of next year, and substantial additional
repayments thereafter. The combination of the
reduced scale of TARP commitments and substantial
repayments should allow us to commit significant
resources to pay down the federal debt over time
and slow its growth rate.
Six more U.S. banks
fail — yearly total now 130 failures.
December
4, 2009FDIC
Press Release | Failed
Bank List
AmTrust Bank,
Cleveland, Ohio, was closed today by the Office of
Thrift Supervision, which appointed the Federal
Deposit Insurance Corporation (FDIC) as receiver.
To protect the depositors, the FDIC entered into a
purchase and assumption agreement with New York
Community Bank, Westbury, New York, to assume all
of the deposits of AmTrust Bank.
As of October 27,
2009, AmTrust Bank had total assets of
approximately $12.0 billion and total
deposits of approximately $8.0 billion. New
York Community Bank did not pay a premium to
assume all of the deposits of AmTrust Bank. In
addition to assuming all of the deposits of the
failed bank, New York Community Bank agreed to
purchase approximately $9.0 billion in assets of
AmTrust Bank. The FDIC will retain the remaining
assets for later disposition.
“The commercial
real estate market is the big problem,” said
James Barth, a former chief economist at the
Office of Thrift Supervision.
AmTrust,
Five Other U.S. Lenders Shut as 2009 Toll Reaches 130
Closely held AmTrust
collapsed alongside three banks in Georgia and one each in
Virginia and Illinois, according to statements issued
yesterday by the Federal Deposit Insurance Corp., which was
named receiver. The failures will cost the FDIC’s deposit
fund $2.38 billion, the agency said.
FED balance sheet
explodes with mortgage-backed
"securities".
US
government-controlled Fannie Mae to obtain
deeds of private homes through "Deed
for Lease" program.
Fannie
to Rent to Owners in Foreclosure
Fannie Mae
will allow homeowners facing foreclosure
to stay in their homes and rent them for
as long as a year, as part of the
government's latest effort to help
troubled borrowers, while keeping more
foreclosed properties from hitting the
housing market.
The
"Deed for Lease" Program lets
borrowers who don't qualify for loan
modifications transfer their property to
Fannie Mae in exchange for a lease.
Borrowers-turned-tenants will pay market
rents, which in most cases are lower than
the cost of mortgage payments, and might
be offered extensions when their leases
expire. [source]
CIT Group files
bankruptcy.
November 1, 2009CIT
Press Release CIT
Board of Directors Approves Proceeding with
Prepackaged Plan of Reorganization with
Overwhelming Support of Debtholders
CIT Group Inc., a
leading provider of financing to small businesses
and middle market companies, today announced that,
with the overwhelming support of its debtholders,
the Board of Directors voted to proceed with the
prepackaged plan of reorganization for CIT Group
Inc. and a subsidiary that will restructure the
Company’s debt and streamline its capital
structure.
US jobless rate
surges to 10.2 percent.
October, 2009
GMAC
Offers $2.9 Billion in Debt
GMAC is the
only financial company with a junk credit
rating to receive support under the
Federal Deposit Insurance Corp.'s
Temporary Liquidity Guarantee Program.
Moody's Investors Service has the company
rated at Ca, two notches above default.
The FDIC backing, however, means these
bonds will be rated triple-A.
The
offering came as GMAC was in discussions
to take another $2.8 billion to $5.6
billion of fresh capital in the form of
preferred stock from the government. The
Treasury already has pumped $12.5 billion
into the company, which lost $3.9 billion
last quarter and will post its
third-quarter results next week.
GMAC
converted to a bank-holding company last
year and is seen as crucial to the
survival of Chrysler LLC and General
Motors Co., both of which were shepherded
into bankruptcy by the government earlier
this year. [source]
Treasury sales
smash record.
October 30, 2009WSJ
For all the
concern over Washington's ballooning deficits and
its $12 trillion debt load, the U.S. government
demonstrated this week that it retains the
capacity to easily raise the funds it needs.
The government sold
a record $123 billion in notes this week in four
auctions. Each was heavily oversubscribed, drawing
in a total of $372.4 billion in bids, more than
three times the offered amount.
This is comforting
news for those worried that the U.S. biggest
lenders, especially the Chinese central bank,
could start paring back on purchases for fear that
record U.S. fiscal deficits and excessively easy
monetary policy could undermine confidence in the
dollar.
The four giant U.S.
government debt sales -- comprising $116 billion
in two-, five-, and seven-year notes and $7
billion in five-year inflation-protected
securities -- speak in part to the continued
dominance of the dollar as a reserve currency.
And the U.S. will
need that demand going forward. Lou Crandall,
chief economist at Wrightson ICAP, expects the
Treasury to issue $1.325 trillion in new debt in
the year through September 2010, based on the
government's guidance for a budget deficit of $1.3
trillion.
"When you look
at the largest capital flows that are going around
the world, they are still coming out of
Asia," said Dominic Konstam, interest-rate
strategist at Credit Suisse in New York. "And
although there has been some diversification ...
at the end of the day they are still beholden to
U.S. markets."
FDIC
in trouble as banks continue to fail.
September 29, 2009FDIC
Press Release
Banks Tapped to Bolster FDIC Resources
The Board of Directors of the Federal Deposit
Insurance Corporation today adopted a Notice of
Proposed Rulemaking (NPR) that would require
insured institutions to prepay their estimated
quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012.
The FDIC estimates that the total prepaid
assessments collected would be approximately $45
billion.
The FDIC Board also voted to adopt a uniform
three-basis point increase in assessment rates
effective on January 1, 2011, and extend the
restoration period from seven to eight years.
Prepayment of
assessments will allow the industry to strengthen
the cash position of the Deposit Insurance Fund
(DIF) immediately, while allowing the capital
impact of deposit insurance assessments to be felt
gradually over time as the industry improves its
own financial position. The banking industry has
substantial liquidity to prepay assessments. As of
June 30, FDIC-insured institutions held more than
$1.3 trillion in liquid balances, or 22 percent
more than they did a year ago. Prepaying
assessments will put the industry's liquid
balances to good use in conserving capital and
helping to maintain the capacity of banks to lend
while they rebuild the DIF. FDIC analysis
indicates that this arrangement is much less
likely to impair bank lending than a one-time
special assessment.
FHA Capital Reserve
Ratio to drop below federal mandate.
September
20, 2009American
Banking News
The Federal Housing
Authority announced last week that its capital
reserve ratio would drop below mandatory levels
for the first time in its 75-year history. The
news comes just weeks after the Obama
Administration launched a program to assist FHA
borrowers that are behind on payments, a program
that is set to only help a small percentage of
those eligible.
The capital reserve
ratio mandated by Congress for the FHA is 2
percent and with the agency now insuring about
a quarter of all new loans generated this year
some concern exists that a bailout may be needed
if delinquencies continue to rise. Roughly 17
percent of the 5.3 million mortgages the FHA
insures are behind by at least one payment.
With perceived risk
increasing for the FHA, Commissioner Stevens also
announced intentions to hire a Chief Risk Officer,
a new position that has not existed in the agency’s
75-year history.
The FHA has been
key component in recovery of the home loan market
the past year as borrowers who attain FHA
insurance are only required to make a down payment
of 3.5 percent. About 80 percent of new loans
insured by the FHA have been for new homebuyers
who might not have been able to purchase a home
with larger down payment requirements.
States shut down to
save cash. September
4, 2009WSJ
Across the country,
cash-strapped state governments are shutting down
business for a day at a time to save money. State
offices are shuttered Friday in California, Maine,
Maryland and Michigan. Some state agencies are
closed in Georgia and Wisconsin, and most Colorado
state offices will be shuttered on Tuesday. Other
states, such as Arizona, have been trying to keep
their operations open while furloughing thousands
of workers.
Fannie Mae reports
second-quarter loss of $14.8 Billion, and then
requests $10.7 Billion more from U.S. Treasury. August
6, 2009Fannie
Mae News Release Fannie Mae reported a loss of
$14.8 billion in the second quarter of 2009,
compared with a loss of $23.2 billion in the first
quarter of 2009. Second-quarter results were
driven primarily by $18.8 billion of
credit-related expenses, reflecting the ongoing
impact of adverse conditions in the housing
market, as well as the economic recession and
rising unemployment.
Taking into account
unrealized gains on available-for-sale securities
during the second quarter and an adjustment to our
deferred tax assets due to the new accounting
guidance, the loss resulted in a net worth
deficit of $10.6 billion as of June 30,
2009.
As a result, on
August 6, 2009, the Director of the Federal
Housing Finance Agency (FHFA), which has been
acting as our conservator since September 6, 2008,
submitted a request for $10.7 billion from the
U.S. Department of the Treasury on our behalf
under the terms of the senior preferred stock
purchase agreement between Fannie Mae and the
Treasury in order to eliminate our net worth
deficit. FHFA has requested that Treasury provide
the funds on or prior to September 30, 2009.
Fannie Mae is
continuing its efforts to support the housing
market by working with lenders, loan servicers and
the government to help homeowners avoid
foreclosure and provide liquidity to the mortgage
market. We have focused our foreclosure-prevention
efforts on the implementation of the Making Home
Affordable Program, which is designed to
significantly expand the number of borrowers who
can refinance or modify their mortgages.
Massive distressed
mergers in 2009. The brutal
recession is opening up the landscape to vulture
investors as never before. New data show that
distressed-debt deals -- in which creditors use
their debt positions to seize ownership of
troubled companies -- are running close to double
the pace of 2008. Some 140 of the deals have been
struck during 2009, compared with 102 transactions
for all of last year, according to data provider
Dealogic. Those figures also include corporate
takeovers, encompassing a wide array of
transactions related to bankruptcies,
restructurings, recapitalizations or liquidations.
The deals are
valued at $84.4 billion altogether, dwarfing the
$20 billion figure from 2008. And they involve
companies from virtually every nook of the U.S.
economy, from auto-parts maker Delphi Corp., to
retailer Eddie Bauer and hotel chain Extended Stay
America. [source]
U.S. tax revenue
takes a dive. Individual
income tax receipts are down 22 percent from a
year ago. Corporate income taxes are down 57
percent. Social Security tax receipts could drop
for only the second time since 1940, and Medicare
taxes are on pace to drop for only the third time
ever. The last
time the government's revenues were this bleak,
the year was 1932 in the midst of the Depression.
[source]
U.S. companies borrowing to
the max.
July 31, 2009 Companies
sold more than $64 billion in debt in July, the
most ever for a summer month. Part of that flood
is simply because the yields that companies have
to pay above Treasurys has been cut in half, to
the lowest in more than a year. The spread between
corporate bonds and Treasurys has fallen to 2.78
percentage points, from as high as 6.56 points in
December, according to Merrill Lynch. Even as
Treasury yields have risen this year, as investors
reverse the extreme flight to safety move from the
depth of the economic and financial meltdown, the
rates that companies have to pay have actually
come down because of that narrowing spread. [source]
"We
believe by maintaining the deepest, most
liquid market in the world, we will
continue to attract capital from a broad
array of investors," said Andrew
Williams, a spokesman for the Treasury
Department.
PBGC To Assume
Delphi Pension Plans
The Pension Benefit
Guaranty Corporation today announced it will
assume responsibility for the pension plans of
70,000 workers and retirees of Delphi Corp., the
nation’s largest producer of automotive parts.
The PBGC will initiate action to become trustee of
the plans, a process that could last up to several
months.
The PBGC is
stepping in to protect the Delphi pensions because
the restructuring Delphi cannot afford to maintain
its pension plans and General Motors has stated it
will not assume them. Delphi was spun off from GM
in 1999.
Since Delphi
entered bankruptcy protection in 2005, the PBGC
has worked intensively with Delphi, GM and other
stakeholders to keep the pension plans ongoing. In
September 2008 GM took on approximately $2.5
billion in liabilities of the Delphi Hourly Plan,
and until its recent restructuring in bankruptcy,
GM had been expected to assume the entire
obligation for the hourly plan.
The
PBGC is a federal corporation created
under the Employee Retirement Income
Security Act of 1974. It currently
guarantees payment of basic pension
benefits earned by 44 million American
workers and retirees participating in over
29,000 private-sector defined benefit
pension plans. The agency receives no
funds from general tax revenues.
Operations are financed largely by
insurance premiums paid by companies that
sponsor pension plans and by investment
returns.
California to issue
IOUs again.
July 2, 2009FED
Press Release
The California State Controller's Office has
announced that it may issue registered warrants,
or IOUs, for some payments as early as today. These
registered warrants would not be payable
immediately, but rather on a future date. These
warrants will be identified with the word
"REGISTERED" on the front.
Customers are
advised to consult with their banks before
depositing a registered warrant and should ask the
following:
Will the bank
accept the registered warrant for deposit?
Some banks may have arrangements to advance
funds to depositors prior to the warrant's
payment date.
When will the
funds be made available for withdrawal? These
warrants will not be subject to the normal,
federal check-hold limits and therefore could
be subject to extended holds.
Is there a
potential to incur fees? The State of
California will likely return unpaid any
registered warrants that it receives before
the payment date. Therefore, depositors
of these warrants may be subject to
returned-deposit fees if their banks attempt
to collect these warrants before they are
payable. In addition, if customers rely
on these funds to make other payments, they
may be subject to overdraft or bounced-check
fees if the warrants are returned.
Why is the State
issuing registered warrants? Without action by
the Governor and Legislature to stave off a severe
cash deficit of almost $3 billion at the end of
July, and more than $3.5 billion in August, the
Controller will be forced to issue individual
registered warrants, also called IOUs, for many
payments. [source]
GM
bankruptcy announced.
June 1, 2009Treasury
Press Release Details
on the Creation of New GM: The newly organized GM will purchase
substantially all of the assets of the old
GM needed to implement its business plan out
of a chapter 11 in exchange for the
U.S. Government relinquishing the majority
of its loans to GM.
*
This new GM will establish an independent
trust (VEBA) that will provide health care
benefits for GM’s retirees. The VEBA
will be funded by a note of $2.5 billion
payable in three installments ending in 2017
and $6.5 billion in 9% perpetual
preferred stock. The VEBA will also
receive 17.5% of the equity of New GM
and warrants to purchase an additional
2.5% of the company. The VEBA will have
the right to select one independent
director and will have no right to vote
its shares or other governance rights.
* The GM qualified pension plans
for both hourly and salaried employees will
be transferred to the New GM as part of the
purchase process.
* The U.S. Treasury is
prepared to provide approximately $30.1
billion of financing to support GM
through an expedited chapter 11 proceeding
and transition the new GM through its
restructuring plan. The U.S. Treasury does
not anticipate providing any additional
assistance to GM beyond this commitment. In
exchange for funds already committed by the
U.S. Treasury and the new injection of $30.1
billion, the U.S. government will receive
approximately $8.8 billion in debt and
preferred stock in the new GM and
approximately 60% of the equity of the new
GM. The U.S. Treasury will also have the
right to appoint the initial directors
other than those that will be selected by
the VEBA and the Canadian government.
* The Governments of Canada
and Ontario will participate alongside the
U.S. Treasury by lending $9.5 billion to
GM and New GM. The Canadian and Ontario
governments will receive approximately
$1.7 billion in debt and preferred stock,
and approximately 12% of the equity of the
new GM. Based on its substantial
financial contribution, the Canadian
government will also have the right to select
one initial director.
* Based on these steps, the new
GM will have far less debt and a world class
balance sheet. This will allow the company
the financial stability to weather future
market downturns and generate significant
excess free cash flow to invest in the
business.
* The new GM will also pursue a
commitment to build a new small car in an
idled UAW factory, which when in place
will increase the share of U.S. production
for U.S. sale from its current level of
about 66% to over 70%.
Warrantees: GM will continue to honor consumer
warranties. This past week, the U.S.
Treasury made available the Warranty Support
Program to GM and $361 million was funded to
a special vehicle available to provide a
backstop on the orderly payment of
warranties for cars sold during this
restructuring period.
The
Bankruptcy Process During this process, GM will continue
operating in the ordinary course. From an
operating perspective, the day after the
filing will not be materially different from
the day before the filing. The following
parties will be treated as described below:
*
Employees: Employees will get paid in the
ordinary course, including salary, wages and
ordinary benefits. Assuming the sale moves
forward as expected, Pension Plan and VEBA
funding will be transferred to New GM.
* Suppliers: GM will seek
authority at its “first day” hearing to
continue to pay suppliers in the ordinary
course. In addition, the U.S. Treasury’s
Supplier Support Program will continue to
operate, and GM suppliers benefiting from
the program will continue to receive that
support.
* Dealers: GM will seek
authority at its “first day” hearing to
honor its customer warranties in the
ordinary course. Moreover, GM will seek to
continue to honor its dealer incentives for
those dealers who are expected to continue
to be part of GM’s distribution network
going forward. There are some dealers that
GM has identified that will not continue
with GM. It is expected that the terminated
dealers will be offered an agreement to
orderly wind down their operations over the
next 18 months
* UAW: The modified labor
agreement reached between the UAW and GM
will be operative and will be assumed by the
New GM.
May
22, 2009
General
Motors, facing the likelihood of a
bankruptcy filing, said Friday it drew
another $4 billion from the Treasury
Department, raising the total it has
received from the government to $19.4
billion. [source]
Simply stated, America is on a
path toward an explosion of debt. And that indebtedness
threatens our country's, our children's, and our
grandchildren's futures. With the looming retirement of the
baby boomers, spiraling health care costs, plummeting
savings rates, and increasing reliance on foreign lenders,
we face unprecedented fiscal risks. -- David
Walker, comptroller general of the United States [source]
Congress
Extends $250,000 Insurance Coverage Through 2013. May
19, 2009FDIC
Consumer News
Last October, to help reassure depositors about the
safety of their money during the economic crisis,
Congress temporarily increased the basic limit on
federal insurance coverage from $100,000 to $250,000
per depositor through December 31, 2009. Now here’s
important news, especially for people who have or
plan to place long-term deposits. On May 19, 2009,
Congress extended the temporary $250,000 coverage
through December 31, 2013.
Emergency
money made available for the commercial property
sector. May
1, 2009FED
Press Release
The Federal
Reserve Board announced that, starting in June,
commercial mortgage-backed securities (CMBS) and
securities backed by insurance premium finance loans
will be eligible collateral under the Term
Asset-Backed Securities Loan Facility (TALF).
The CMBS market came
to a standstill in mid-2008. The inclusion of CMBS
as eligible collateral for TALF loans will help
prevent defaults on economically viable commercial
properties, increase the capacity of current holders
of maturing mortgages to make additional loans, and
facilitate the sale of distressed properties. CMBS
accounted for almost half of new commercial mortgage
originations in 2007.
More than 1.5 million
insurance premium finance loans are extended to
small businesses each year so they can obtain
property and casualty insurance. The loans are often
funded through the asset-backed securities (ABS)
market and have become more expensive and more
difficult to obtain since the shutdown of that
market last fall. The inclusion of insurance premium
ABS as TALF-eligible collateral will facilitate the
flow of credit to small businesses.
Chrysler
bankruptcy announced. April
30, 2009Treasury
Press Release
On March 30,
2009, President Obama laid out a framework for
Chrysler to achieve viability by partnering with the
international car company Fiat. After a month of
close engagement with the President's Auto Task
Force, Chrysler, Fiat and their key stakeholders
have made unprecedented sacrifices and executed an
agreement that positions Chrysler for a viable
future. To execute this agreement, Chrysler will use
Section 363 of the bankruptcy code to clear
away the remaining impediments.
The Chrysler Fiat
Alliance:
* The alliance will retain Chrysler's
existing factory footprint and continue producing
Chrysler cars in U.S. factories.
* Fiat is contributing billions of
dollars in advanced technology and intellectual
property, and offering Chrysler access to a global
distribution network.
* The UAW has made important concessions
on wages, benefits, and retiree health care.
* Chrysler's largest secured creditors
have agreed to exchange their portion of the
Company's $6.9 billion secured claim for
their pro-rata share of $2 billion in cash at
closing. The Bankruptcy Court process will be used
to confirm this treatment on those lenders that
failed to accept the offer that was accepted by a
majority of the lenders.
* Daimler, Chrysler's current minority
shareholder, has agreed to waive its share of
Chrysler's $2 billion of second lien debt, give
up its 19% equity interest in Chrysler's
ultimate parent, and settle its guaranty obligation
to the PBGC by agreeing to pay $600 million
to Chrysler's pension funds.
* Cerberus has agreed to waive its
share of Chrysler's $2 billion of second lien
debt and forfeit its entire equity stake in
Chrysler.
Details on the
Chrysler Fiat Alliance:
* Fiat will contribute a free license to
use all of its intellectual property and "know
how" to capitalize Chrysler in exchange for 20%
of the equity of the reorganized Chrysler. Fiat
will have the right to select three directors
of Chrysler once reorganized. In addition, Fiat will
have the right to earn up to 15% in additional
equity in three tranches of 5% – each in
exchange for meeting performance metrics, including
introducing a vehicle produced at a Chrysler factory
in the U.S. that performs at 40 mpg;
providing Chrysler with a distribution network in
numerous foreign jurisdictions; and manufacturing
state-of-the art, next generation engines at a U.S
Chrysler facility.
* The newly reorganized Chrysler will
purchase substantially all of the assets of the old
Chrysler out of a chapter 11 bankruptcy case
in exchange for a $2 billion payment to its
secured lenders.
* This new Chrysler will establish an
independent trust (VEBA) that will provide health
care benefits for Chrysler's retirees. The VEBA will
be funded by a note of $4.6 billion payable
over approximately 13 years with a 9% rate of
interest and will receive 55% of the equity
of New Chrysler. The VEBA will have the right to
select one independent director and will have
no other governance rights.
* The Chrysler Pension Plans will be
preserved, and their stability will be strengthened
from the Daimler contribution of $600 million.
* The U.S. Treasury will receive 8%
of the equity of the new Chrysler. U.S. Treasury
also has the right to select the initial group of four
independent directors, but thereafter will not
play a role in the governance or management of the
Company.
* The Governments of Canada and Ontario
will together receive 2% of the equity of the
new Chrysler. Based on its substantial financial
contribution, Canada will also have the right to
select one independent director, on the same
basis as the four independent directors initially
chosen by the U.S.
Details on U.S.
Government Support:
* Consistent with the President's
commitment to provide adequate working capital to
help Chrysler through this restructuring period and
loan up to $6 billion to the Chrysler-Fiat
Alliance, the U.S. government has committed to
provide assistance sufficient to help give Chrysler
a chance to achieve financial viability.
* Working capital: The U.S. government
is prepared to provide approximately $3.3 billion
in debtor in possession financing to support
Chrysler through an expedited chapter 11
proceeding.
* Loan to the New Chrysler: Upon
closing, the U.S. government is prepared to loan
approximately $4.7 billion to New Chrysler.
There is also an additional note of $288 million
which is a fee for making these loans. The loans
will be secured by a first priority lien on all of
Chrysler's assets.
Canadian Government
Participation:
* The governments of Canada and Ontario
will participate alongside the U.S. Treasury in
lending money to Chrysler and New Chrysler based on
a 3:1 formula using Canadian currency.
Viable Financing
Solution:
* Chrysler will enter into an agreement
with GMAC to provide dealer and customer financing.
The U.S. Government is supporting the automotive
restructuring initiative by promoting the
availability of credit financing for dealers and
customers, including liquidity and capitalization
that would be available to GMAC, and by providing
the capitalization that GMAC requires to support the
Chrysler business.
Warranties:
* Chrysler will continue to honor
consumer warranties. Yesterday, the U.S. Treasury
made available the Warranty Support Program to
Chrysler and $280 million was funded to a
special vehicle available to provide a backstop on
the orderly payment of warranties for cars sold
during this restructuring period.
Executing the
Chrysler-Fiat Alliance
* While many stakeholders made
sacrifices and worked constructively in this
process, some did not. In particular, a group of
investment firms and hedge funds failed to accept
reasonable offers to settle on their debt. In order
to effectuate this alliance without rewarding those
who refused to sacrifice, the U.S. government
will use our bankruptcy code to clear away remaining
obligations.
More
Mortgage Troubles: FHA
likely to need taxpayer bailout. April
2, 2009DOW
JONES NEWSWIRES
The Obama administration will soon decide whether
the Federal Housing Administration will remain
self-financing or need taxpayer money to continue
propping up the mortgage market, Housing Secretary
Shaun Donovan told a Senate panel. The FHA, which is
located within HUD, insures mortgage lenders against
the risk of defaults on home mortgages that meet its
standards. In the aftermath of the housing bust,
borrowers have flocked to FHA loans as other sources
of mortgage credit have dried up.
The FHA's share of
the U.S. mortgage market soared to nearly a third of
loans originated in the fourth quarter of 2008, from
about 2% in 2006. Rising defaults are now eating
through the FHA's cushion of reserves, raising the
risk the program will face a financial crunch. There
is concern that the program is becoming a magnet for
fraudsters or the former subprime lenders who helped
to cause the housing crisis. The FHA program has
never needed taxpayer funds to cover insurance
claims since its creation in 1934.
In his testimony,
Donovan made a strong pitch for increased funding at
FHA so the agency could cope with the surge in
business. He said the agency is short of staff, too
reliant on manual processes for its underwriting and
risk management and in need of better
fraud-detection tools. The list of approved FHA
lenders has soared 525% from 2006 through 2008.
"The integrity and reliability of this crop of
program loan originators is, in our view, unproven,
and, in light of the aggressive recent history of
this industry, may pose a risk to the program."
GM
Bankruptcy: General
Motors enters government-initiated virtual bankruptcy,
and faces potential full bankruptcy. March
30, 2009THE
WHITE HOUSE - Office of the Press Secretary
...the federal government provided General Motors
and Chrysler with emergency loans to prevent their
sudden collapse at the end of last year -- only on
the condition that they would develop plans to
restructure. In keeping with that agreement, each
company has submitted a plan to restructure. But
after careful analysis, we've determined that
neither goes far enough to warrant the substantial
new investments that these companies are requesting.
And so today I'm
announcing that my administration will offer GM and
Chrysler a limited additional period of time to work
with creditors, unions, and other stakeholders to
fundamentally restructure in a way that would
justify an investment of additional taxpayer
dollars. During this period they must produce plans
that would give the American people confidence in
their long-term prospects for success.
Now, what we're
asking for is difficult. It will require hard
choices by companies. It will require unions and
workers who have already made extraordinarily
painful concessions to do more. It'll require
creditors to recognize that they can't hold out for
the prospect of endless government bailouts... As an
initial step, GM is announcing today that Rick
Wagoner is stepping aside as Chairman and CEO...
my administration will
offer General Motors adequate working capital over
the next 60 days. And during this time, my
team will be working closely with GM to produce a
better business plan....
If you buy a car from
Chrysler or General Motors, you will be able to get
your car serviced and repaired, just like always.
Your warranty will be safe. In fact, it will be
safer than it's ever been, because starting today,
the United States government will stand behind your
warranty... the IRS is launching a campaign to alert
consumers of a new tax benefit for auto purchases
made between February 16th and the end of this
year... several members of Congress have proposed an
even more ambitious incentive program to increase
car sales while modernizing our auto fleet... The
Canadian government has indicated its support for
our approach and will be announcing their specific
commitments later today.
More
Government Control of Financial System: US Treasury
outlines framework for regulatory reform. March
26, 2009Treasury
Press Release
New Rules of the Road, focusing on containing
systemic risk 1. A Single Independent Regulator With
Responsibility Over Systemically Important Firms and
Critical Payment and Settlement Systems 2. Higher Standards on Capital and Risk
Management for Systemically Important Firms 3. Registration of All Hedge Fund
Advisers With Assets Under Management Above a
Moderate Threshold 4. A Comprehensive Framework of
Oversight, Protections and Disclosure for the OTC
Derivatives Market 5. New Requirements for Money Market
Funds to Reduce the Risk of Rapid Withdrawals
Independent
Federal Agency needs help from Federal Government:
U.S. Postal Service cannot overcome the economic
forces without help from Congress. March
25, 2009USPS
Press Release
Postmaster
General John E. Potter outlined ongoing elements of
the Postal Service’s strategy to help close the
budget gap – a “chasm, widening each day,” he
said – created by the agency’s revenue
shortfall. These include:
* A new process for
evaluating and adjusting city delivery routes
* Reduction of employee work hours and overtime by
pursuing even greater efficiencies throughout the
organization
* Halting construction of new postal facilities and
directing funds to the sites with the most critical
needs (i.e., buildings badly damaged or destroyed by
natural disasters)
* Improved fleet management and delivery routing to
reduce fuel usage
* Expanded energy efficiency to reduce energy use
throughout Postal Service facilities
* Reductions in employee travel budgets through the
use of web and video technology to conduct meetings
and conferences
* Renegotiations of supplier contracts to reflect
reduced needs
To strengthen the
Postal Service’s efforts, Potter asked Congress to
pass H.R. 22 and modify the method by which it is
required to fund retirement health care benefits.
This legislative change would reverse a policy that
was instituted when the Postal Service experienced
large surpluses – and result in at least $2
billion in annual savings over an eight year period.
There would be no costs to the taxpayer were H.R. 22
to be enacted.
“Even with our
aggressive cost-cutting measures, our situation is
critical,” Potter said. “We cannot overcome the
economic forces without help from Congress.”
Bad
Asset Shifting: US government
to supervise asset shifting when toxic
assets become legacy assets under new
Public-Private Investment Program planned by the US
Treasury, the Federal Deposit Insurance Corporation
and the Federal Reserve. March
23, 2009Treasury
Press Release
Using $75 to $100 billion in Troubled Asset
Relief Program (TARP) capital and capital from
private investors, the Public-Private Investment
Program will generate $500 billion in purchasing
power to buy legacy assets – with the
potential to expand to $1 trillion over time.
The Public-Private Investment Program will be
designed around three basic principles:
1.
Maximizing the Impact of Each Taxpayer Dollar:
First, by using government financing in partnership
with the FDIC and Federal Reserve and co-investment
with private sector investors, substantial
purchasing power will be created, making the most of
taxpayer resources. 2. Shared Risk and Profits With Private
Sector Participants: Second, the Public-Private
Investment Program ensures that private sector
participants invest alongside the taxpayer, with the
private sector investors standing to lose their
entire investment in a downside scenario and the
taxpayer sharing in profitable returns. 3. Private Sector Price Discovery:
Third, to reduce the likelihood that the government
will overpay for these assets, private sector
investors competing with one another will establish
the price of the loans and securities purchased
under the program.
US
MONETIZING
DEBT: Federal
Reserve puts billions of newly-printed dollars in circulation
with purchases of up to $1.15 trillion.
March 18, 2009FOMC
Press Release
Information received since the Federal Open Market Committee
met in January indicates that the economy continues to
contract. The Committee decided today to increase the size
of the Federal Reserve’s balance sheet further by
purchasing up to an additional $750
billion of agency mortgage-backed securities,
bringing its total purchases of these securities to up to
$1.25 trillion this year, and to increase its purchases of
agency debt this year by up to $100
billion to a total of up to $200 billion.
Moreover, to help improve
conditions in private credit markets, the Committee decided
to purchase up to $300 billion
of longer-term Treasury securities over the next six
months.
The Committee will maintain
the target range for the federal funds rate at 0 to 1/4
percent.
Congress
passed the $787,000,000,000
American Recovery and Reinvestment Act of 2009 at
the urging of President Obama. February
13, 2009Recovery.gov
On Feb. 13, 2009,
Congress passed the American Recovery and
Reinvestment Act of 2009 at the urging of President
Obama, who signed it into law four days later. A
direct response to the economic crisis, the Recovery
Act has three immediate goals:
* Create new jobs and
save existing ones
* Spur economic activity and invest in long-term
growth
* Foster unprecedented levels of accountability and
transparency in government spending
The Recovery Act
intends to achieve those goals by:
* Providing $288
billion in tax cuts and benefits for millions of
working families and businesses
* Increasing federal funds for education and health
care as well as entitlement programs (such as
extending unemployment benefits) by $224 billion
* Making $275 billion available for federal
contracts, grants and loans
* Requiring recipients of Recovery funds to report
quarterly on how they are using the money. All the
data is posted on Recovery.gov so the public can
track the Recovery funds.
In addition to
offering financial aid directly to local school
districts, expanding the Child Tax Credit, and
underwriting a process to computerize health records
to reduce medical errors and save on health care
costs, the Recovery Act is targeted at
infrastructure development and enhancement. For
instance, the Act plans investment in the domestic
renewable energy industry and the weatherizing of 75
percent of federal buildings as well as more than
one million private homes around the country.
Construction and
repair of roads and bridges as well as scientific
research and the expansion
of broadband and wireless service are also
included among the many projects that the Recovery
Act will fund.
While many of
Recovery Act projects are focused more immediately
on jumpstarting the economy, others, especially
those involving infrastructure improvements, are
expected to contribute to economic growth for many
years.
H.R. 1: American Recovery and Reinvestment Act of 2009
Introduced Jan 26, 2009
Amendments (485 proposed)
Passed House Jan 28, 2009
Passed Senate Feb 10, 2009
Differences Resolved Feb 13, 2009
Signed by President Feb 17, 2009
Almost-Free
Money for Banks: Federal
Reserve reduces selected interest rates to nearly zero.
December 16, 2008FOMC
Press Release
Since the Federal Open Market Committee's last meeting,
labor market conditions have deteriorated, and the outlook
for economic activity has weakened further. The Committee
decided today to establish a target range for the federal
funds rate of 0 to 1/4 percent. The Committee
anticipates that weak economic conditions are likely to
warrant exceptionally low levels of the federal funds rate
for some time.
In a related action, the
Board of Governors unanimously approved a 75-basis-point
decrease in the discount rate to 1/2 percent. The
Board also established interest rates on required and excess
reserve balances of 1/4 percent.
Creation
of Term Asset-Backed Securities Loan Facility (TALF). November
25, 2008FED
Press Release
The Federal
Reserve Board announced the creation of the Term
Asset-Backed Securities Loan Facility (TALF), a
facility that will help market participants meet the
credit needs of households and small businesses by
supporting the issuance of asset-backed securities
(ABS) collateralized by student loans, auto loans,
credit card loans, and loans guaranteed by the Small
Business Administration (SBA).
Under the TALF, the
Federal Reserve Bank of New York (FRBNY) will lend
up to $200 billion on a non-recourse basis to
holders of certain AAA-rated ABS backed by newly and
recently originated consumer and small business
loans. The FRBNY will lend an amount equal to the
market value of the ABS less a haircut and will be
secured at all times by the ABS. The U.S. Treasury
Department--under the Troubled Assets Relief Program
(TARP) of the Emergency Economic Stabilization Act
of 2008--will provide $20 billion of credit
protection to the FRBNY in connection with the TALF.
New issuance of ABS
declined precipitously in September and came to a
halt in October. At the same time, interest rate
spreads on AAA-rated tranches of ABS soared to
levels well outside the range of historical
experience, reflecting unusually high risk premiums.
The ABS markets historically have funded a
substantial share of consumer credit and
SBA-guaranteed small business loans. Continued
disruption of these markets could significantly
limit the availability of credit to households and
small businesses and thereby contribute to further
weakening of U.S. economic activity. The TALF is
designed to increase credit availability and support
economic activity by facilitating renewed issuance
of consumer and small business ABS at more normal
interest rate spreads.
Federal
Reserve deals with Fannie Mae and Freddie Mac unsoundness. November
25, 2008FED
Press Release
The Federal Reserve announced that it
will initiate a program to purchase the direct
obligations of housing-related government-sponsored
enterprises (GSEs)--Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks--and mortgage-backed
securities (MBS) backed by Fannie Mae, Freddie Mac,
and Ginnie Mae. This action is being taken to reduce
the cost and increase the availability of credit for
the purchase of houses.
Purchases of up
to $100 billion in GSE direct obligations
under the program will be conducted with the Federal
Reserve's primary dealers through a series of
competitive auctions and will begin next week.
Purchases of up to $500
billion in MBS will be conducted by asset
managers selected via a competitive process with a
goal of beginning these purchases before year-end.
Purchases of both direct obligations and MBS are
expected to take place over several quarters.
US
Treasury Announces TARP (Troubled Asset
Relief Program)
Capital Purchase Plan.
October 14, 2008Treasury
Press Release Treasury announced a voluntary Capital
Purchase Program to encourage U.S. financial
institutions to build capital to increase the flow
of financing to U.S. businesses and consumers and to
support the U.S. economy.
Under the program,
Treasury will purchase up to $250 billion of
senior preferred shares on standardized terms as
described in the program's term sheet. The program
will be available to qualifying U.S. controlled
banks, savings associations, and certain bank and
savings and loan holding companies engaged only in
financial activities.
Companies
participating in the program must adopt the Treasury
Department's standards for executive compensation
and corporate governance, for the period during
which Treasury holds equity issued under this
program.
US Congress - H. R. 1424
One Hundred Tenth Congress of the United States of
America
An Act To provide
authority for the Federal Government to purchase and
insure certain types of troubled assets for the
purposes of providing stability to and preventing
disruption in the economy and financial system and
protecting taxpayers, to amend the Internal Revenue
Code of 1986 to provide incentives for energy
production and conservation, to extend certain
expiring provisions, to provide individual income
tax relief, and for other purposes...
SEC. 115.
GRADUATED AUTHORIZATION TO PURCHASE. (a) AUTHORITY.—The
authority of the Secretary to purchase troubled
assets under this Act shall be limited as
follows:
(1) Effective upon the date of enactment of this
Act, such authority shall be limited to
$250,000,000,000 outstanding at any one time.
(2) If at any time, the President submits to the
Congress a written certification that the Secretary
needs to exercise the authority under this
paragraph, effective upon such submission, such
authority shall be limited to $350,000,000,000
outstanding at any one time.
(3) If, at any time after the certification in
paragraph (2) has been made, the President transmits
to the Congress a written report detailing the plan
of the Secretary to exercise the authority under
this paragraph, unless there is enacted, within 15
calendar days of such transmission, a joint
resolution described in subsection (c), effective
upon the expiration of such 15-day period, such
authority shall be limited to $700,000,000,000
outstanding at any one time.more...
FED
Helps Banks with Interest: Federal Reserve announces
that it will pay interest on banks' reserve balances. October
6, 2008FED
Press Release
The Federal
Reserve Board announced that it will begin to pay
interest on depository institutions' required and
excess reserve balances.
The Financial
Services Regulatory Relief Act of 2006 originally
authorized the Federal Reserve to begin paying
interest on balances held by or on behalf of
depository institutions beginning October 1, 2011.
The recently enacted Emergency Economic
Stabilization Act of 2008 accelerated the effective
date to October 1, 2008.
Employing the
accelerated authority, the Board has approved a rule
to amend its Regulation D (Reserve Requirements of
Depository Institutions) to direct the Federal
Reserve Banks to pay interest on required reserve
balances (that is, balances held to satisfy
depository institutions' reserve requirements) and
on excess balances (balances held in excess of
required reserve balances and clearing balances).
The interest rate
paid on required reserve balances will be the
average targeted federal funds rate established by
the Federal Open Market Committee over each reserve
maintenance period less 10 basis points. Paying
interest on required reserve balances should
essentially eliminate the opportunity cost of
holding required reserves, promoting efficiency in
the banking sector.
The rate paid on
excess balances will be set initially as the lowest
targeted federal funds rate for each reserve
maintenance period less 75 basis points. Paying
interest on excess balances should help to establish
a lower bound on the federal funds rate. The formula
for the interest rate on excess balances may be
adjusted subsequently in light of experience and
evolving market conditions.
FDIC
deposit insurance temporarily increased from
$100,000 to $250,000 per depositor.
October
3, 2008FDIC
Financial Institution Letters
On October 3,
2008, President George W. Bush signed the Emergency
Economic Stabilization Act of 2008, which
temporarily raises the basic limit on federal
deposit insurance coverage from $100,000 to $250,000
per depositor. The temporary increase in deposit
insurance coverage became effective immediately upon
the President's signature. The legislation provides
that the basic deposit insurance limit will return
to $100,000 after December 31, 2009.
Run
ends on money market funds.
September
29, 2008 Investors
have stopped fleeing money-market funds, a week
after the federal government said it would insure
fund shares don't lose their value.
Under the program,
which began Monday, the Treasury Department will
guarantee that the value of participating money
funds will not fall below the standard $1 a share.
Fund companies must pay for the insurance and only
shares held on or before Sept. 19 will be covered.
The rapid exodus from
money funds began after The Reserve Fund announced
on Sept. 16 that shares in its primary fund fell to
97 cents due to losses incurred when Lehman Brothers
declared bankruptcy.
The total held in
money funds, which had hit a record high of $3.535
trillion on Sept. 9, plummeted to $3.288 trillion 10
days later, when the government plan was
unveiled. [source]
After
massive oversight failure, SEC announces end of CSE
program. September
26, 2008SEC
Press Release
Securities and Exchange Commission Chairman
Christopher Cox today announced a decision by the
Division of Trading and Markets to end the Consolidated
Supervised Entities (CSE) program,
created in 2004 as a way for global investment bank
conglomerates that lack a supervisor under law to
voluntarily submit to regulation. Chairman Cox also
described the agency's plans for enhancing SEC
oversight of the broker-dealer subsidiaries of bank
holding companies regulated by the Federal Reserve,
based on the recent Memorandum of Understanding (MOU)
between the SEC and the Fed.
Chairman Cox made the
following statement:
The last six months
have made it abundantly clear that voluntary
regulation does not work. When Congress passed the Gramm-Leach-Bliley
Act, it created a significant regulatory gap by
failing to give to the SEC or any agency the
authority to regulate large investment bank holding
companies, like Goldman Sachs, Morgan Stanley,
Merrill Lynch, Lehman Brothers, and Bear Stearns.
Because of the lack
of explicit statutory authority for the Commission
to require these investment bank holding companies
to report their capital, maintain liquidity, or
submit to leverage requirements, the Commission in
2004 created a voluntary program, the Consolidated
Supervised Entities program, in an effort to fill
this regulatory gap.
As I have reported to
the Congress multiple times in recent months, the
CSE program was fundamentally flawed from the
beginning, because investment banks could opt in or
out of supervision voluntarily. The fact that
investment bank holding companies could withdraw
from this voluntary supervision at their discretion
diminished the perceived mandate of the CSE program,
and weakened its effectiveness.
The Inspector General
of the SEC today released a report on the CSE
program's supervision of Bear Stearns, and that
report validates and echoes the concerns I have
expressed to Congress. The report's major findings
are ultimately derivative of the lack of specific
legal authority for the SEC or any other agency to
act as the regulator of these large investment bank
holding companies.
With each of the
major investment banks that had been part of the CSE
program being reconstituted within a bank holding
company, they will all be subject to statutory
supervision by the Federal Reserve. Under the Bank
Holding Company Act, the Federal Reserve has robust
statutory authority to impose and enforce
supervisory requirements on those entities. Thus,
there is not currently a regulatory gap in this
area.
The CSE program within
the Division of Trading and Markets will now be
ending.
Under the Memorandum
of Understanding between the SEC and the Federal
Reserve that was executed in July of this year, we
will continue to work closely with the Fed, but
focused even more clearly on our statutory
obligation to regulate the broker-dealer
subsidiaries of the banking conglomerates. The
information from the bank holding company level that
the SEC will continue to receive under the MOU will
strengthen our ability to protect the customers of
the broker-dealers and the integrity of the
broker-dealer firms.
The Inspector
General's office also made 26 specific
recommendations to improve the CSE program, which
are comprehensive and worthy of support. Although
the CSE program is ending, we will look closely at
the applicability of those recommendations to other
areas of the Commission's work and move to
aggressively implement them.
As we learned from
the CSE experience, it is critical that Congress
ensure there are no similar major gaps in our
regulatory framework. Unfortunately, as I reported
to Congress this week, a massive hole remains: the
approximately $60 trillion credit default swap (CDS)
market, which is regulated by no agency of
government. Neither the SEC nor any regulator
has authority even to require minimum disclosure. I
urge Congress to take swift action to address this.
Finally, I would like
to commend the extraordinary efforts of the SEC's
diligent staff, who for so many months have been
working around the clock in the current market
turmoil. Their dedication and commitment in behalf
of investors and the American people are unequaled.
Treasury
Announces Guaranty Program for Money Market Funds.
September
19, 2008Treasury
Press Release
| FED
Press Release The U.S.
Treasury Department today announced the
establishment of a temporary guaranty program for
the U.S. money market mutual fund industry. For the
next year, the U.S. Treasury will insure the
holdings of any publicly offered eligible money
market mutual fund – both retail and institutional
– that pays a fee to participate in the program.
President George W.
Bush approved the use of existing authorities by
Secretary Henry M. Paulson, Jr. to make available as
necessary the assets of the Exchange Stabilization
Fund for up to $50 billion to guarantee the payment
in the circumstances described below.
Concerns about the
net asset value of money market funds falling below
$1 have exacerbated global financial market turmoil
and caused severe liquidity strains in world
markets. In turn, these pressures have caused a
spike in some short term interest and funding rates,
and significantly heightened volatility in exchange
markets. Absent the provision of such financing,
there is a substantial risk of further heightened
global instability.
Maintenance of the
standard $1 net asset value for money market mutual
funds is important to investors. If the net asset
value for a fund falls below $1, this undermines
investor confidence. The program provides support to
investors in funds that participate in the program
and those funds will not "break the buck".
This action should
enhance market confidence and alleviate investors'
concerns about the ability for money market mutual
funds to absorb a loss. Investors in money market
mutual funds with a net asset value that falls below
$1 would be notified that their fund triggered the
insurance program.
- - -
- - - - - - -
The Federal Reserve
Board on Friday announced two enhancements to its
programs to provide liquidity to markets. One
initiative will extend non-recourse loans at the
primary credit rate to U.S. depository institutions
and bank holding companies to finance their
purchases of high-quality asset-backed commercial
paper (ABCP) from money market mutual funds. This
should assist money funds that hold such paper in
meeting demands for redemptions by investors and
foster liquidity in the ABCP markets and broader
money markets.
Money
market "bank run" of billions of dollars. September
18, 2008
"The Treasury
opened its window to help. They pumped a hundred and
five billion dollars into the system and quickly
realized that they could not stem the tide. We were
having an electronic run on the banks. They decided
to close the operation, close down the money
accounts, and announce a guarantee of $250,000 per
account so there wouldn't be further panic and
there. And that's what actually happened. If they
had not done that their estimation was that by two
o'clock that afternoon, five-and-a-half trillion
dollars would have been drawn out of the money
market system of the United States, would have
collapsed the entire economy of the United States,
and within 24 hours the world economy would have
collapsed." -- Capital Markets Subcommittee
Chair, Rep. Paul Kanjorski of Pennsylvania
$85
billion to save AIG, and U.S. government will
receive a 79.9 percent equity interest. September
16, 2008FED
Press Release
The Federal
Reserve Board, 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.
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 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.
LEHMAN
BROTHERS HOLDINGS INC. FILED CHAPTER 11 September
15, 2008Lehman
Press Release
Lehman Brothers Holdings Inc. (“LBHI”) stated
that it has filed a petition under Chapter 11 of the
U.S. Bankruptcy Code with the United States
Bankruptcy Court for the Southern District of New
York. None of the broker-dealer subsidiaries or
other subsidiaries of LBHI was included in the
Chapter 11 filing and all of the U.S. registered
broker-dealers will continue to operate.
There is likely to
be a domino effect.
Lehman Brothers Holdings Inc., the fourth-largest
U.S. investment bank, succumbed to the subprime
mortgage crisis it helped create in the biggest
bankruptcy filing in history.
The 158-year-old
firm, which survived railroad bankruptcies of the
1800s, the Great Depression in the 1930s and the
collapse of Long-Term Capital Management a decade
ago, filed a Chapter 11 petition with U.S.
Bankruptcy Court in Manhattan today. The collapse of
Lehman, which listed more than $613 billion of debt,
dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel
Burnham Lambert's failure in 1990.
Lehman was forced
into bankruptcy after Barclays Plc and Bank of
America Corp. abandoned takeover talks yesterday and
the company lost 94 percent of its market value this
year. Chief Executive Officer Richard Fuld, who
turned the New York-based firm into the biggest
underwriter of mortgage-backed securities at the top
of the U.S. real estate market, joins his
counterparts at Bear Stearns Cos., Merrill Lynch
& Co. and more than 10 banks that couldn't
survive this year's credit crunch.
``There is likely to
be a domino effect as other firms and individuals
who relied on Lehman for financing feel the effects
of its meltdown,'' said Charles ``Chuck'' Tatelbaum,
a bankruptcy lawyer with Adorno & Yoss in
Florida and former editor of the American Bankruptcy
Institute Journal. ``The whole thing is frankly
frightening for the U.S. economy.'' [source]
Unstable
and about to fail, Fannie
Mae and Freddie Mac enter into conservatorship. September
7, 2008FHFA Statement
| Treasury
Press Release
In order to restore the balance between safety and
soundness and mission, Federal Housing Finance
Agency has placed Fannie Mae and Freddie Mac into
conservatorship. That is a statutory process
designed to stabilize a troubled institution with
the objective of returning the entities to normal
business operations. FHFA will act as the
conservator to operate the Enterprises until they
are stabilized.
Risky
Business: OFHEO,
Fannie Mae and Freddie Mac announce initiative to
increase liquidity in the U.S. mortgage market --
capital requirement reduced by 33%.
March
19, 2008OFHEO
News Release
The initiative is
expected to provide up to $200 billion of
immediate liquidity to the mortgage-backed
securities market. The Office of Federal Housing
Enterprise Oversight estimates that Fannie Mae’s
and Freddie Mac’s existing capabilities, combined
with this new initiative and the release of the
portfolio caps announced in February, should allow
government-sponsored enterprises (like Fannie Mae
and Freddie Mac which are privately held
corporations with public purposes created by the
U.S. Congress to reduce the cost of borrowing in
certain sectors) to purchase or
guarantee about $2 trillion in mortgages this
year. This capacity will permit them to do more in
the jumbo temporary conforming market, subprime
refinancing and loan modifications areas.
OFHEO concludes that
it is appropriate to reduce immediately the
existing 30 percent OFHEO-directed capital
requirement to a 20 percent level, and will
consider further reductions in the future.
Federal
Reserve Bank of New York funds Maiden Lane LLC to
deal with Bear Stearns collapse and forced merger. March
2008FED
News
In March 2008,
the Federal Reserve Bank of New York (New York Fed)
and JPMorgan Chase & Co. (JPMC) entered into an
arrangement related to the financing provided by the
New York Fed to facilitate the merger of JPMC and
the Bear Stearns Companies Inc. (Bear Stearns). In
connection with the transaction, the Federal Reserve
Board authorized the New York Fed under section
13(3) of the Federal Reserve Act, to extend credit
to a Delaware limited liability company, Maiden Lane
LLC (ML LLC), to fund the purchase of a portfolio of
mortgage related securities, residential and
commercial mortgage loans and associated hedges
(Asset Portfolio) from Bear Stearns.
ML LLC was formed in
the second quarter of 2008. ML LLC borrowed
approximately $28.8 billion from the New York
Fed in the form of a senior loan (Senior Loan),
which, together with funding from JPMC of
approximately $1.15 billion in the form of a
subordinate loan (Subordinate Loan, and together
with the Senior Loan, the Loans) was used to
purchase the Asset Portfolio from Bear Stearns. The
Asset Portfolio had an estimated fair value as of
March 14, 2008, of approximately $30 billion.
The New York Fed has
all material control rights over the Asset Portfolio
and is the sole and managing member of ML LLC.
The Loans are secured
by the Asset Portfolio. The Senior Loan was issued
with a stated term of ten years, and may be extended
at the New York Fed’s discretion.
FED
lending up to $200 billion under new Term Securities
Lending Facility (TSLF). March
11, 2008FED
Press Release
The Federal
Reserve announced today an expansion of its
securities lending program. Under this new Term
Securities Lending Facility (TSLF), the Federal
Reserve will lend up to $200 billion of
Treasury securities to primary dealers secured for a
term of 28 days (rather than overnight, as in the
existing program) by a pledge of other securities,
including federal agency debt, federal agency
residential-mortgage-backed securities (MBS), and
non-agency AAA/Aaa-rated private-label residential
MBS. The TSLF is intended to promote liquidity in
the financing markets for Treasury and other
collateral and thus to foster the functioning of
financial markets more generally.
FED
lending billions of dollars under new Term Auction
Facility (TAF) program. December
12, 2007FED
Press Release
Actions taken by
the Federal Reserve include the establishment of a
temporary Term Auction Facility (approved by the
Board of Governors of the Federal Reserve System)
and the establishment of foreign exchange swap lines
with the European Central Bank and the Swiss
National Bank (approved by the Federal Open Market
Committee).
Under the Term
Auction Facility (TAF) program, the Federal Reserve
will auction term funds to depository institutions
against the wide variety of collateral that can be
used to secure loans at the discount window. By
allowing the Federal Reserve to inject term funds
through a broader range of counterparties and
against a broader range of collateral than open
market operations, this facility could help promote
the efficient dissemination of liquidity when the
unsecured interbank markets are under stress.
Each TAF auction will
be for a fixed amount, with the rate determined by
the auction process (subject to a minimum bid rate).
The first TAF auction of $20 billion is
scheduled for Monday, December 17, with settlement
on Thursday, December 20; this auction will provide
28-day term funds, maturing Thursday, January 17,
2008. The second auction of up to $20 billion
is scheduled for Thursday, December 20, with
settlement on Thursday, December 27; this auction
will provide 35-day funds, maturing Thursday,
January 31, 2008. The third and fourth auctions will
be held on January 14 and 28, with settlement on the
following Thursdays. The amounts of those auctions
will be determined in January. The Federal Reserve
may conduct additional auctions in subsequent
months, depending in part on evolving market
conditions.
Bear
Stearns High-Grade Structured Credit Funds collapse. July
17, 2007Investopedia
In a letter sent
to investors, Bear Stearns Asset Management reported
that its Bear Stearns High-Grade Structured Credit
Fund had lost more than 90% of its value, while the
Bear Stearns High-Grade Structured Credit Enhanced
Leveraged Fund had lost virtually all of its
investor capital. The larger Structured Credit Fund
had around $1 billion, while the Enhanced
Leveraged Fund, which was less than a year old, had
nearly $600 million in investor capital.
Then on July 31, 2007
the two funds filed
for Chapter 15 bankruptcy. Bear Stearns
effectively wound down the funds and liquidated all
of its holdings.
Fannie Mae and Freddie Mac Discussion C-SPAN
2 [video] October
2004
Government Sponsored
Enterprises (GSEs) are a group of financial
services corporations created by the United States
Congress. The two largest housing GSEs, Fannie Mae
and Freddie Mac, own and/or securitize the
majority of the residential mortgage loans in the
United States. A GSE bond is generally perceived
to have the same risk as a government bond, such that
while GSEs clearly state their securities are not
directly backed by the U.S. government, the market
largely perceives them to have an implicit government
guarantee. GSEs are a hybrid form of a corporation
designed to use privately provided capital in pursuit
of publicly developed missions.
Large growth in index trading based on credit-default swaps (CDS). June,
4
2004wallstreetandtech.com
In the booming business of
credit derivatives, hedge funds, insurance companies,
asset managers and pension funds have been fueling
growth in index trading based on credit-default swaps
(CDS).
The surge in buy-side
interest - particularly from hedge funds - has led to
tighter spreads, more liquidity and growth in CDS
index-trading volumes. This, in turn, is causing
dealers to seek more automation in terms of
electronically trading, booking and confirming the
index transactions to scale their operations.
"You've seen an
exponential rise in the amount of index trading,"
comments Samik Chandarana, a vice president at
JPMorgan Chase in London who trades the TRAC-X
European indices via Creditex, an electronic platform.
Comparing the TRAC-X indices to the futures contract
on the Standard & Poor's 500 index, Chandarana
says, "It's an easy way to take exposure to a
well-diversified portfolio from the long or short
side."
Index trading has
become the hot trend in credit derivatives because it
lets investors take a position, such as a negative
view of credit, more easily than if they had to short
a bond, for instance. "It is one of the driving
forces of the industry right now," says Adam
Josephson, an analyst at Boston-based Celent
Communications who authored a report on credit
derivatives in January.
About a year ago,
JPMorgan and Morgan Stanley created the TRAC-X index,
Josephson writes, "in an effort to build greater
transparency, liquidity and acceptance of
credit-default swaps." After bickering over the
way the index was being administered, the dealers
brought in Dow Jones to calculate and publish the
index, now known as the Dow Jones TRAC-X. Meanwhile, a
separate group of dealers, led by Deutsche Bank, ABN
Amro and Citigroup, created the iBoxx index suite.
"These index
products were essentially designed to give the buy
side broad market exposure to credit risk as an asset
class," says Michael Fuhrman, product market
specialist at GFI, an inter-dealer broker in credit
derivatives.
With TRAC-X, an
investor can obtain exposure to the 100 most liquid
credit-default swaps in North America, Europe, Asia,
Japan and Australia, while iBoxx offers the top 125
names in North America and Europe. Each one breaks
down into sub-sectors, such as financials, consumer
products, transportation, technology media and
telecom, energy, and industrial, so investors can
trade different sectors as opposed to the entire
index.
Now, the two rival
credit-derivatives index products have agreed to
merge. According to published reports, the banks have
signed a letter of intent to develop a set of indices
and create two separate companies covering the U.S.
markets, Europe and Asia. Dow Jones reportedly will
take over the marketing and licensing of the
indices. more...
Following Europe, SEC
sets new net-capital rules for brokerages. April
28,
2004stanford.edu
U.S. market regulators on
Wednesday approved new rules that would let some major
Wall Street brokerages reduce the amount of money they
set aside as net capital, in some cases by as much as
30 percent. In a move in line with bank regulatory
changes in Europe, the U.S. Securities and Exchange
Commission voted unanimously in an open meeting to
approve two optional sets of rules. Under one of them,
five big U.S. brokerages are expected to apply soon to
be designated as "consolidated supervised
entities," or CSEs. Each application for CSE
status will have to be reviewed by the SEC, likely
several months from now.
Goldman Sachs , Morgan
Stanley, Merrill Lynch, Lehman Brothers and Bear
Stearns have expressed keen interest in CSE status,
SEC Market Regulation Director Annette Nazareth told
reporters after the meeting. "They are all very
well-capitalized firms," Nazareth said. In line
with new capital adequacy standards coming into force
soon under Europe's Basel accords, brokerages granted
CSE status would be able to use in-house,
risk-measuring computer models to figure how much net
capital they need to set aside. Under Basel standards,
some institutions could soon be cutting their net
capital by as much as 50 percent. But the SEC's new
CSE rule added a $5-billion floor to the Basel model,
reducing the likely level of reductions to 20 to 30
percent.
The SEC approved a
second set of net-capital rules, also voluntary, that
would designate an institution as a "supervised
investment bank holding company." But Nazareth
said there has been little industry interest expressed
in it.
SEC Commissioner Paul
Atkins said monitoring the sophisticated models used
by the brokerages under the CSE rules -- and stepping
in where net capital falls too low -- "is going
to present a real management challenge" for the
SEC. Since the new CSE rules will apply to the largest
brokerages without bank affiliates, SEC Commissioner
Harvey Goldschmid said, "If anything goes wrong,
it's going to be an awfully big mess."
New
agency proposed to oversee Freddie Mac and Fannie
Mae. September
11, 2003The
New York Times
The Bush
administration today recommended the most
significant regulatory overhaul in the housing
finance industry since the savings and loan crisis a
decade ago.
Under the plan,
disclosed at a Congressional hearing today, a new
agency would be created within the Treasury
Department to assume supervision of Fannie Mae and
Freddie Mac, the government-sponsored companies that
are the two largest players in the mortgage lending
industry.
The new agency would
have the authority, which now rests with Congress,
to set one of the two capital-reserve requirements
for the companies. It would exercise authority over
any new lines of business. And it would determine
whether the two are adequately managing the risks of
their ballooning portfolios.
The plan is an
acknowledgment by the administration that oversight
of Fannie Mae and Freddie Mac -- which together have
issued more than $1.5 trillion in outstanding debt
-- is broken. A report by outside investigators in
July concluded that Freddie Mac manipulated its
accounting to mislead investors, and critics have
said Fannie Mae does not adequately hedge against
rising interest rates.
''There is a general
recognition that the supervisory system for
housing-related government-sponsored enterprises
neither has the tools, nor the stature, to deal
effectively with the current size, complexity and
importance of these enterprises,'' Treasury
Secretary John W. Snow told the House Financial
Services Committee in an appearance with Housing
Secretary Mel Martinez, who also backed the plan.
''The current
regulator does not have the tools, or the mandate,
to adequately regulate these enterprises,'' Mr.
Oxley said at the hearing. ''We have seen in recent
months that mismanagement and questionable
accounting practices went largely unnoticed by the
Office of Federal Housing Enterprise Oversight,''
the independent agency that now regulates the
companies.
''These
irregularities, which have been going on for several
years, should have been detected earlier by the
regulator,'' he added.
The Office of Federal
Housing Enterprise Oversight, which is part of the
Department of Housing and Urban Development, was
created by Congress in 1992 after the bailout of the
savings and loan industry and concerns about
regulation of Fannie Mae and Freddie Mac, which buy
mortgages from lenders and repackage them as
securities or hold them in their own portfolios.
At the time, the
companies and their allies beat back efforts for
tougher oversight by the Treasury Department, the
Federal Deposit Insurance Corporation or the Federal
Reserve. Supporters of the companies said efforts to
regulate the lenders tightly under those agencies
might diminish their ability to finance loans for
lower-income families. This year, however, the
chances of passing legislation to tighten the
oversight are better than in the past.
Fannie Mae, which was
previously known as the Federal National Mortgage
Association, and Freddie Mac, which was the Federal
Home Loan Mortgage Corporation, have been criticized
by rivals for exerting too much influence over their
regulators.
Significant details
must still be worked out before Congress can approve
a bill. Among the groups denouncing the proposal
today were the National Association of Home Builders
and Congressional Democrats who fear that tighter
regulation of the companies could sharply reduce
their commitment to financing low-income and
affordable housing.
''These two
entities -- Fannie Mae and Freddie Mac -- are not
facing any kind of financial crisis,'' said
Representative Barney Frank of Massachusetts, the
ranking Democrat on the Financial Services
Committee. ''The more people exaggerate these
problems, the more pressure there is on these
companies, the less we will see in terms of
affordable housing.''
What
They Said About Fan and Fred
"I do think I do not
want the same kind of focus on safety and soundness that we
have in OCC [Office of the Comptroller of the Currency] and
OTS [Office of Thrift Supervision]. I want to roll the dice
a little bit more in this situation towards subsidized
housing."
-- Rep. Barney Frank,
House Financial Services Committee hearing, Sept. 25, 2003
Freddie
Mac gives U.S. a case of nerves. June
13, 2003LA
Times
Even as mortgage
interest rates glided effortlessly to new lows
Thursday, the nation's economic policymakers watched
nervously for signs of additional trouble at
mortgage finance giant Freddie Mac. And with good
reason.
If things were to go
terribly wrong for the federally chartered behemoth,
the results could dwarf what until now has been the
government's biggest bailout: the savings and loan
collapse of the 1980s.
In the S&L case,
Washington had to protect government-guaranteed
deposits totaling about $1.9 trillion in 2003
dollars. If Freddie Mac and its mortgage industry
sibling, Fannie Mae, were to run into deep trouble,
it's conceivable that the government could get stuck
guaranteeing nearly twice that much. That, or risk
letting the firms' problems threaten the strongest
pillar of today's shaky U.S. economy: housing.
Congress
passes wide-ranging bill easing bank laws. November
4, 1999The
New York Times
Congress approved
landmark legislation today that opens the door for a
new era on Wall Street in which commercial banks,
securities houses and insurers will find it easier
and cheaper to enter one another's businesses.
The measure,
considered by many the most important banking
legislation in 66 years, was approved in the Senate
by a vote of 90 to 8 and in the House tonight by 362
to 57. The bill will now be sent to the president,
who is expected to sign it, aides said. It would
become one of the most significant achievements this
year by the White House and the Republicans leading
the 106th Congress.
''Today Congress
voted to update the rules that have governed
financial services since the Great Depression and
replace them with a system for the 21st century,''
Treasury Secretary Lawrence H. Summers said. ''This
historic legislation will better enable American
companies to compete in the new economy.''
The decision to
repeal the Glass-Steagall Act of 1933 provoked dire
warnings from a handful of dissenters that the
deregulation of Wall Street would someday wreak
havoc on the nation's financial system. The
original idea behind Glass-Steagall was that
separation between bankers and brokers would reduce
the potential conflicts of interest that were
thought to have contributed to the speculative stock
frenzy before the Depression.
-
- - - - - - - - -
Bill
Clinton signs the repeal of the Glass-Steagall Act. November
12, 1999Forbes
On Nov. 12 President Bill Clinton signed the 1933
Glass-Steagall Act out of existence. For the first
time in 66 years, no legal wall stands between banks
and insurance companies. Banks can now write and
sell insurance policies. Insurers can make loans and
do other bankerly things. Banks and insurers can
merge into one-stop financial product combines--bancassurers,
as they're known in Europe.
An
early credit default swap —
to avoid reserve capital requirement. 1994
The Exxon Valdez
ran aground in March of 1989, spilling 11 million
gallons of oil into Prince William Sound. Lieff
Cabraser served as one of the court-appointed
Plaintiffs’ Class Counsel. The class consisted of
32,000 fishermen, Alaska natives, landowners, and
others whose livelihoods were gravely affected by
the disaster. In addition, Lieff served on the Class
Trial Team in 1994. A class action jury trial was
held in federal court in 1994. The jury returned an
award of $5 billion in punitive damages.
more...
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- - - - - - - - -
Exxon needed to
open a line of credit to cover potential damages of
five billion dollars... J. P. Morgan was reluctant
to turn down Exxon, which was an old client, but the
deal would tie up a lot of reserve cash to provide
for the risk of the loans going bad. The so-called
Basel rules, named for the town in Switzerland where
they were formulated, required that the banks hold
eight per cent of their capital in reserve against
the risk of outstanding loans. That limited the
amount of lending bankers could do, the amount of
risk they could take on, and therefore the amount of
profit they could make. But, if the risk of the
loans could be sold, it logically followed that the
loans were now risk-free; and, if that were the
case, what would have been the reserve cash could
now be freely loaned out. No need to suck up useful
capital.
In late
1994, Blythe Masters, a member of the J. P. Morgan
swaps team, pitched the idea of selling the credit
risk to the European Bank of Reconstruction and
Development. So, if Exxon defaulted, the E.B.R.D.
would be on the hook for it—and, in return for
taking on the risk, would receive a fee from J. P.
Morgan. Exxon would get its credit line, and J. P.
Morgan would get to honor its client relationship
but also to keep its credit lines intact for sexier
activities. The deal was so new that it didn’t
even have a name: eventually, the one settled on was
“credit-default swap.” more...
Economics
- the social science that deals with the production, distribution,
and consumption of goods and services. Note - a brief written or printed statement providing
information. Pad - a number of pages glued or
linked together.