It has been a very eventful couple of days It shows you just how bad things are becoming. It appears (as Aesop said – appearances are often deceiving) that our Government and the Federal Reserve are doing everything they can to prevent a collapse of our financial system. Let’s think about what is really happening. Remember – who caused this mess? The Federal Reserve – by its monetary policy. Who is solving this mess? The Federal Reserve – by printing money to buy real assets. Where did the Federal Reserve get this $85 billion? As Chris mentions below – out of thin air. They create this money.
Wouldn’t it be nice if you could print your own money to pay your bills or buy things? Not really – think it through. What would happen if everyone had their own printing presses and printed as much money as they wanted? You guessed it – money would quickly become worthless. This is exactly what is happening to the dollar. The Fed is printing vast amounts of money to prop up our failing monetary/economic system. What is going to happen to our money? The same thing will happen as we described above – inflation will skyrocket and our money will become worthless. It’s inevitable.
I’m sure that the stock market will rise tomorrow as people hail this move – we’re saved! Unfortunately, this bailout does nothing to solve the massive underlying problems that are causing all of this. This is simply another symptom of the much bigger problem our monetary system has created. What will the government do with Washington Mutual? When will we reach the point that we can’t bailout any more of these banks/corporations? We are rapidly approaching a cliff – much more quickly than anyone anticipated. When we fall off the cliff – you can bet that there is a plan waiting in the wings to somehow rescue us – which is what this is all about.
What is also very interesting is that you will never hear in the mainstream media how the Federal Reserve gets the money to bailout these institutions. Ever wonder why?
John Gilmore – 9/16/2008
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WOW(!!) - Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake
Dr. Chris Martenson
9/16/2008
This is an incredible turn of events. This is the biggest news of the decade.
I was not expecting this sort of activity for another year or two yet.
The Federal Reserve has bought a majority stake in a private company in exchange for cash. Where did the Fed get this cash? It was created out of thin air.
In just in the past five days the Fed has vastly expanded its Treasuries for Trash(tm) program,begun accepting equities from stricken companies in exchange for cash or higher quality assets, and now has actually bought a gigantic insurance company.
I'll let this article from the NYT fill in the details.
Quote:
In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.
But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.
Link to Article (no additional content, I posted the whole thing)
Here's my very direct and simple thought; the US dollar is toast.
The other central banks are doing what they can to stem the tide but, mark my words, sooner or later reality will catch up and the dollar will plummet. How can it not?
Think about it...the dollar is indirectly the obligation of the US but more directly the obligation of the Federal Reserve.
The Federal Reserve now sports a completely ruined balance sheet. So you would be right in asking yourself "what does a dollar represent, after all?"
If you find yourself stumped, you will be in the company of the rest of the world. Let me put it this way, if I were a Saudi Prince I'd be asking myself, "what exactly is the long-term direction of a currency that is backed by defective loans, unsaleable assets, and positions in failed companies?"
Indeed, that now describes the balance sheet of the Federal Reserve.
I cannot state this strongly enough - the stage is now set for a major dollar collapse and whether it does or not depends completely on the behavior of non-US financial entities. The die are cast and it remains to be seen if they turn up snake-eyes or not.
Showing posts with label financial bailout. Show all posts
Showing posts with label financial bailout. Show all posts
Saturday, September 16, 2006
U.S. Treasury Considers Buying Stakes in Banks
We are seeing governments and central banks around the world ‘injecting’ capital into the financial system. You’ll notice that when a government and/or central bank ‘injects’ money (also referred to as a ‘bailout’) into a private corporation (Example: AIG) or bank, often the government and/or central bank receives equity in that corporation or bank in return (article below). As an example, the Federal Reserve received an 80% equity stake in AIG when it provided $85 billion in funding. Where did they get this $85 billion? It was created out of thin air and $85 billion was added to the debt of the United States government. Nice arrangement if you can get it. It also appears that $85 billion wasn’t enough – yesterday AIG needed an additional $37 billion from the Fed. Things are beginning to get really ugly.
If we, once again, strip away the rhetoric – what is really happening? Governments (United States included) and central banks (around the world) are buying majority stakes in corporations and banks. It is being done under the guise of shoring up the financial system – deceptive, but effective. While the people of the world think that governments and central banks are doing whatever they can to alleviate the financial ‘crisis’ – there is actually a long term plan at work here. Control of the financial/banking system is being consolidated rapidly under the central banking system (now including investment banks). We even see the Federal Reserve considering loaning money directly to corporations (articles began appearing yesterday) – bypassing the crippled banking system. When was the last time they did this? The Great Depression.
This is not an ‘inevitable’ result of the current crisis. If we stop listening to the lies – we begin to see what is really happening – financial control of the world continues to be consolidated into the hands of a very few, powerful people.
Yesterday, central banks around the world lowered short-term interest rates by 50 basis points. Is the current financial crisis a result of the ‘cost’ of money or is this a ‘liquidity’ problem? It’s a liquidity problem – banks aren’t lending and credit markets are frozen. Does it matter that it costs you less to borrow money if you can’t borrow money? No, it doesn’t. So, why would all of these central banks lower interest rates in this environment? I believe it’s all about appearances. By doing this, they ‘appear’ to be doing something that will positively impact stock markets. The reality is that this does nothing to help or solve the problem. The charade continues.
As I’ve said before – the underlying problem isn’t the credit markets or the banks or any of the hundreds of reasons we hear about on the news everyday. The problem is our monetary system that requires exponential growth. This will not correct itself until the monetary system changes. Where does all of this lead? Can governments bailout financial/banking firms forever? Of course not. This financial ‘crisis’ will eventually spread to governments the world over. Governments receive revenue from this ‘system’ and are already saddled with massive debt. It won’t be long before we start hearing that the entire system needs to change. How will it change? We’ll be told that we need a ‘coordinated’ financial system without national boundaries – without national currencies – eventually leading to world government controlling a coordinated world financial system.
Of course the Bible tells us all of this. We’re simply living during times when we can watch all of the details play out.
jg – October 9, 2008
_______________________________
U.S. Treasury Considers Buying Stakes in Banks
New Tack Comes Amid World-Wide Emergency Rate Cuts
By DEBORAH SOLOMON
Wall St. Journal
October 9, 2008
WASHINGTON—The Treasury Department is considering ways to inject capital directly into banks, possibly by taking equity stakes, as the financial crisis continues to worsen.
Treasury Secretary Henry Paulson, in a marked shift in rhetoric, played up Treasury's newfound authority to "to inject capital into financial institutions" in remarks Wednesday. Mr. Paulson, who won approval from Congress to buy $700 billion worth of distressed assets, had previously focused on Treasury's plan to buy mortgage-related securities from financial institutions that are having trouble getting the assets off their books.
As the financial crisis continues to escalate, Treasury has begun fleshing out ways to use its authority to make direct injections into financial institutions, according to a person familiar with the matter. Treasury is figuring out how to structure such infusions so that banks can recapitalize and begin lending.
No such moves are imminent, but the fact that the department is engaging in such discussions is an indication of how the crisis is constantly morphing. Such a move was not under consideration just a few days ago but has become more of a possibility in recent days as the stock market has plunged and the credit crunch shows no signs of easing.
Treasury wants to design something voluntary that encourages healthy institutions to participate. Treasury is discussing whether to buy preferred stock or find some other way to inject capital into the firms.
In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to "any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability."
The U.K. government this week announced a plan to take stakes in a range of domestic banks.
Coordinated Rate Cuts
On Wednesday morning, the world's central banks launched a large coordinated attack against the widening global financial crisis, lowering short-term interest rates in unison.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke testify before the House Financial Services Committee on Sept. 24.
The emergency interest-rate action, which involved the Fed, the European Central Bank, the Bank of England and others, is a sign that fears that the financial crisis could cripple the global economy are spreading rapidly.
But the rate move failed to soothe jittery investors. The Dow Jones Industrial Average closed Wednesday at 9258.10, down 189 points, or 2%. The index has fallen 14.6% so far this month. Oil fell $1.11 to $88.95 a barrel, on signs of weakening global demand. Investors continued to flock to safe-haven U.S. Treasury bills, and away from riskier debt such as junk bonds.
One of the chief threats to the global economy is that banks and other financial institutions are hoarding cash, which makes it harder for businesses and households to finance their day-to-day affairs. Lower interest rates reduce the cost of borrowing for banks, businesses and households, and potentially boost confidence. But it's far from clear whether the lower rates will make banks and other lenders, which are gripped by fears of defaults by borrowers, any more willing to lend.
The U.K. government this week announced a plan to take stakes in a range of domestic banks. As recently as a few days ago, the U.S. Treasury was not considering any capital injections. But it has become more of a possibility as the stock market has plunged and the credit crunch shows no signs of easing.
Treasury wants to design something voluntary that encourages healthy institutions to participate. It is discussing whether to buy preferred stock or find some other way to inject capital into the firms.
In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to "any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability."
On Wednesday, central banks in the U.S., the euro zone, the U.K., Canada, Sweden and Switzerland each cut short-term interest rates by a half percentage point, noting that "the recent intensification of the financial crisis has augmented the downside risks to growth." Acting on its own, the People's Bank of China also cut rates, as did Australia's central bank, a day earlier. Later, central banks in South Korean and Taiwan cut interest rates, too, and Brazil's central bank cut reserve requirements on cash and term deposits.
______________________________
Central Banks in Global Show of Force
Central banks around the world acted in concert Monday, hoping a half-percentage-point rate cut would restore confidence to battered markets, WSJ's David Wessel reports. (Oct. 8)
The global scope of the move was unprecedented, and the cuts marked the first time central banks across the Atlantic have moved in tandem on interest-rate policy since just after the Sept. 11, 2001, terrorist attacks in the U.S. The Fed has not moved rates since April, when it lowered them to 2%.
The moves likely mark just the beginning of broadened government efforts to keep the world-wide credit freeze from strangling the global economy. "For all central banks, this is not the end of the story," says Laurence Meyer, vice chairman of Macroeconomic Advisers, a forecasting firm, and a former Federal Reserve governor. "We're facing a potentially severe recession."
—Jon Hilsenrath, Joellen Perry and Sudeep Reddy contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com
If we, once again, strip away the rhetoric – what is really happening? Governments (United States included) and central banks (around the world) are buying majority stakes in corporations and banks. It is being done under the guise of shoring up the financial system – deceptive, but effective. While the people of the world think that governments and central banks are doing whatever they can to alleviate the financial ‘crisis’ – there is actually a long term plan at work here. Control of the financial/banking system is being consolidated rapidly under the central banking system (now including investment banks). We even see the Federal Reserve considering loaning money directly to corporations (articles began appearing yesterday) – bypassing the crippled banking system. When was the last time they did this? The Great Depression.
This is not an ‘inevitable’ result of the current crisis. If we stop listening to the lies – we begin to see what is really happening – financial control of the world continues to be consolidated into the hands of a very few, powerful people.
Yesterday, central banks around the world lowered short-term interest rates by 50 basis points. Is the current financial crisis a result of the ‘cost’ of money or is this a ‘liquidity’ problem? It’s a liquidity problem – banks aren’t lending and credit markets are frozen. Does it matter that it costs you less to borrow money if you can’t borrow money? No, it doesn’t. So, why would all of these central banks lower interest rates in this environment? I believe it’s all about appearances. By doing this, they ‘appear’ to be doing something that will positively impact stock markets. The reality is that this does nothing to help or solve the problem. The charade continues.
As I’ve said before – the underlying problem isn’t the credit markets or the banks or any of the hundreds of reasons we hear about on the news everyday. The problem is our monetary system that requires exponential growth. This will not correct itself until the monetary system changes. Where does all of this lead? Can governments bailout financial/banking firms forever? Of course not. This financial ‘crisis’ will eventually spread to governments the world over. Governments receive revenue from this ‘system’ and are already saddled with massive debt. It won’t be long before we start hearing that the entire system needs to change. How will it change? We’ll be told that we need a ‘coordinated’ financial system without national boundaries – without national currencies – eventually leading to world government controlling a coordinated world financial system.
Of course the Bible tells us all of this. We’re simply living during times when we can watch all of the details play out.
jg – October 9, 2008
_______________________________
U.S. Treasury Considers Buying Stakes in Banks
New Tack Comes Amid World-Wide Emergency Rate Cuts
By DEBORAH SOLOMON
Wall St. Journal
October 9, 2008
WASHINGTON—The Treasury Department is considering ways to inject capital directly into banks, possibly by taking equity stakes, as the financial crisis continues to worsen.
Treasury Secretary Henry Paulson, in a marked shift in rhetoric, played up Treasury's newfound authority to "to inject capital into financial institutions" in remarks Wednesday. Mr. Paulson, who won approval from Congress to buy $700 billion worth of distressed assets, had previously focused on Treasury's plan to buy mortgage-related securities from financial institutions that are having trouble getting the assets off their books.
As the financial crisis continues to escalate, Treasury has begun fleshing out ways to use its authority to make direct injections into financial institutions, according to a person familiar with the matter. Treasury is figuring out how to structure such infusions so that banks can recapitalize and begin lending.
No such moves are imminent, but the fact that the department is engaging in such discussions is an indication of how the crisis is constantly morphing. Such a move was not under consideration just a few days ago but has become more of a possibility in recent days as the stock market has plunged and the credit crunch shows no signs of easing.
Treasury wants to design something voluntary that encourages healthy institutions to participate. Treasury is discussing whether to buy preferred stock or find some other way to inject capital into the firms.
In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to "any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability."
The U.K. government this week announced a plan to take stakes in a range of domestic banks.
Coordinated Rate Cuts
On Wednesday morning, the world's central banks launched a large coordinated attack against the widening global financial crisis, lowering short-term interest rates in unison.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke testify before the House Financial Services Committee on Sept. 24.
The emergency interest-rate action, which involved the Fed, the European Central Bank, the Bank of England and others, is a sign that fears that the financial crisis could cripple the global economy are spreading rapidly.
But the rate move failed to soothe jittery investors. The Dow Jones Industrial Average closed Wednesday at 9258.10, down 189 points, or 2%. The index has fallen 14.6% so far this month. Oil fell $1.11 to $88.95 a barrel, on signs of weakening global demand. Investors continued to flock to safe-haven U.S. Treasury bills, and away from riskier debt such as junk bonds.
One of the chief threats to the global economy is that banks and other financial institutions are hoarding cash, which makes it harder for businesses and households to finance their day-to-day affairs. Lower interest rates reduce the cost of borrowing for banks, businesses and households, and potentially boost confidence. But it's far from clear whether the lower rates will make banks and other lenders, which are gripped by fears of defaults by borrowers, any more willing to lend.
The U.K. government this week announced a plan to take stakes in a range of domestic banks. As recently as a few days ago, the U.S. Treasury was not considering any capital injections. But it has become more of a possibility as the stock market has plunged and the credit crunch shows no signs of easing.
Treasury wants to design something voluntary that encourages healthy institutions to participate. It is discussing whether to buy preferred stock or find some other way to inject capital into the firms.
In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to "any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability."
On Wednesday, central banks in the U.S., the euro zone, the U.K., Canada, Sweden and Switzerland each cut short-term interest rates by a half percentage point, noting that "the recent intensification of the financial crisis has augmented the downside risks to growth." Acting on its own, the People's Bank of China also cut rates, as did Australia's central bank, a day earlier. Later, central banks in South Korean and Taiwan cut interest rates, too, and Brazil's central bank cut reserve requirements on cash and term deposits.
______________________________
Central Banks in Global Show of Force
Central banks around the world acted in concert Monday, hoping a half-percentage-point rate cut would restore confidence to battered markets, WSJ's David Wessel reports. (Oct. 8)
The global scope of the move was unprecedented, and the cuts marked the first time central banks across the Atlantic have moved in tandem on interest-rate policy since just after the Sept. 11, 2001, terrorist attacks in the U.S. The Fed has not moved rates since April, when it lowered them to 2%.
The moves likely mark just the beginning of broadened government efforts to keep the world-wide credit freeze from strangling the global economy. "For all central banks, this is not the end of the story," says Laurence Meyer, vice chairman of Macroeconomic Advisers, a forecasting firm, and a former Federal Reserve governor. "We're facing a potentially severe recession."
—Jon Hilsenrath, Joellen Perry and Sudeep Reddy contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com
Handouts to Wall Street Announced
Handouts to Wall Street Announced
By: Dr. Chris Martenson
Dr. Martenson adds some additional comments on the recent developments concerning the government’s investment in our banks.
Handouts to Wall Street Announced
By: Dr. Chris Martenson
Monday, October 13, 2008, 9:00 pm, by cmartenson
Once again, the "will of the people" was overridden by Congress in their haste to respond to an "emergency," and, once again, it turns out the people's instincts were right.
Remember the initial $250 billion that was going to be used to buy troubled assets which "we had to do right away!" because otherwise there would have been untold misery and millions of jobs lost?
Turns out we don't need to buy any of those assets right away after all.
Who knew?
Quote:
WASHINGTON — The Treasury Department, in its boldest move yet, is expected to announce a plan Tuesday to invest up to $250 billion in large and small banks, according to officials. The United States is also expected to guarantee new debt issued by banks for a period of three years, officials said.
Instead, the money will be used to buy bank stock, which is a great deal if you are a bank, because you get cash equity and probably a nice boost to your stock price (I am cynically assuming that the government is not going to get the best price here....). And these purchases will be non-dilutive to existing shareholders. I was okay with the notion of capital infusions, but I am astounded to hear that they will be done in this manner to save existing shareholders.
Even more startling to me is that, instead of slapping the banks firmly on the wrist for being reckless, the government is also "expected to guarantee new debt issued by banks for a period of three years." To put it bluntly, that is just not the way to combat the moral hazard that is clearly endemic to our current banking system. I think the banks should be kept fully on the hook for any loans they make from here on out....mess up again, and your institution goes under.
Next, if you read the list of handouts below, things get even more troublesome (if your measure is "enormous rewards for Wall Street for misbehaving bother me").
Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch.
A few of those companies are not even in trouble, at all, and yet they are about to receive billions and billions of dollars. Apparently there is a $5 billion reward for acquiring a competitor....I wonder how many knew about that when they were at the bargaining table? I would bet quite a few of them.
Wait, it get's better:
The goal is to inject massive liquidity into the banking system. The government will purchase perpetual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings.
First, this is NOT a liquidity injection, this is a capital injection, and there's a big difference. Second, this deal could not possibly be any sweeter for any of the bankers or their shareholders. It amounts to a gigantic reward for playing risky and getting caught. Executive positions and shareholders are to be spared.
I am now squinting anew at the market sell-off last week, because it served to inject a lot of fear into the government and G7 negotiations at a critical moment that paved the way for the largest and most massive bailout ever in history. Strangely good timing, for the banks.
I called this a looting operation at the outset, and my suspicions are now largely confirmed.
After these trillions of dollars have been spent and distributed to the least worthy institutions on the planet, you will discover a few oddities along the way:
• Government debts will balloon enormously.
• No new jobs will be created.
• House prices will continue to fall and foreclosures will continue to mount.
• The real economy will have received practically zero benefit.
• Bridges, roads, and schools will still be in poor repair.
• States will still be hurting for revenues.
• We will still have no national energy plan.
In short, none of this money is directed at the real economy. All of it is directed at the institutions that created this mess in the first place, and which, honestly, feast on the productive economy.
This was, quite simply, the largest-ever transfer of public monies to private parties with the least amount of public gain.
We're going to be paying for this for a long, long time.
Oh, well, I suppose it is all history now. Time to sit back and see how the bond markets respond to all this new borrowing.
By: Dr. Chris Martenson
Dr. Martenson adds some additional comments on the recent developments concerning the government’s investment in our banks.
Handouts to Wall Street Announced
By: Dr. Chris Martenson
Monday, October 13, 2008, 9:00 pm, by cmartenson
Once again, the "will of the people" was overridden by Congress in their haste to respond to an "emergency," and, once again, it turns out the people's instincts were right.
Remember the initial $250 billion that was going to be used to buy troubled assets which "we had to do right away!" because otherwise there would have been untold misery and millions of jobs lost?
Turns out we don't need to buy any of those assets right away after all.
Who knew?
Quote:
WASHINGTON — The Treasury Department, in its boldest move yet, is expected to announce a plan Tuesday to invest up to $250 billion in large and small banks, according to officials. The United States is also expected to guarantee new debt issued by banks for a period of three years, officials said.
Instead, the money will be used to buy bank stock, which is a great deal if you are a bank, because you get cash equity and probably a nice boost to your stock price (I am cynically assuming that the government is not going to get the best price here....). And these purchases will be non-dilutive to existing shareholders. I was okay with the notion of capital infusions, but I am astounded to hear that they will be done in this manner to save existing shareholders.
Even more startling to me is that, instead of slapping the banks firmly on the wrist for being reckless, the government is also "expected to guarantee new debt issued by banks for a period of three years." To put it bluntly, that is just not the way to combat the moral hazard that is clearly endemic to our current banking system. I think the banks should be kept fully on the hook for any loans they make from here on out....mess up again, and your institution goes under.
Next, if you read the list of handouts below, things get even more troublesome (if your measure is "enormous rewards for Wall Street for misbehaving bother me").
Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch.
A few of those companies are not even in trouble, at all, and yet they are about to receive billions and billions of dollars. Apparently there is a $5 billion reward for acquiring a competitor....I wonder how many knew about that when they were at the bargaining table? I would bet quite a few of them.
Wait, it get's better:
The goal is to inject massive liquidity into the banking system. The government will purchase perpetual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings.
First, this is NOT a liquidity injection, this is a capital injection, and there's a big difference. Second, this deal could not possibly be any sweeter for any of the bankers or their shareholders. It amounts to a gigantic reward for playing risky and getting caught. Executive positions and shareholders are to be spared.
I am now squinting anew at the market sell-off last week, because it served to inject a lot of fear into the government and G7 negotiations at a critical moment that paved the way for the largest and most massive bailout ever in history. Strangely good timing, for the banks.
I called this a looting operation at the outset, and my suspicions are now largely confirmed.
After these trillions of dollars have been spent and distributed to the least worthy institutions on the planet, you will discover a few oddities along the way:
• Government debts will balloon enormously.
• No new jobs will be created.
• House prices will continue to fall and foreclosures will continue to mount.
• The real economy will have received practically zero benefit.
• Bridges, roads, and schools will still be in poor repair.
• States will still be hurting for revenues.
• We will still have no national energy plan.
In short, none of this money is directed at the real economy. All of it is directed at the institutions that created this mess in the first place, and which, honestly, feast on the productive economy.
This was, quite simply, the largest-ever transfer of public monies to private parties with the least amount of public gain.
We're going to be paying for this for a long, long time.
Oh, well, I suppose it is all history now. Time to sit back and see how the bond markets respond to all this new borrowing.
U.S. Announces Plan to Buy Stakes in Largest Banks
How was the recent $700 billion bailout sold to the American people? It’s only been about a week – have we all forgotten this? If you will remember, this bailout was sold to us as the only way for the financial system to recover. What was causing all of the problems? Toxic securities (CDO’s, etc.). Our government was going to buy these securities and take them off the books of banks/financial institutions. So, what has the Treasury done with the first blank check? They have purchased equity stakes in our largest banks – moving towards nationalizing our banking system. I find this very interesting. What does it tell us? It tells us that our leaders have lied to us so that they could get what amounts to endless funding for nationalizing our banking system – plain and simple. We see the same game plan being played out the world over. Iceland has nationalized their banking system. The U.K. has nationalized their largest banks. Europe is moving in the same direction.
I’m sure that our government will purchase toxic securities at some point. Think about what’s going to happen to our government when the economy doesn’t recover and it has all of this additional toxic debt on its balance sheet. We’re already insolvent – this isn’t going to help anything – except accelerate our government’s decline.
jg – Oct 14, 2008
____________
OCTOBER 14, 2008, 10:31 A.M. ET
U.S. Announces Plan to Buy Stakes in Largest Banks
Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort
By DEBORAH SOLOMON, DAMIAN PALETTA, JON HILSENRATH and AARON LUCCHETTI
WASHINGTON -- President George W. Bush announced Tuesday morning that the U.S. government is taking stakes in the nation's top financial institutions as part of a new plan to restore confidence to the battered U.S. banking system, a far-reaching effort that puts the government's guarantee behind the basic plumbing of financial markets.
FDIC Chairperson Sheila Bair speaks at a news conference as U.S. Treasury Secretary Henry Paulson (center) and Federal Reserve Chairman Ben Bernanke (right) look on.
"The efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover,'' President Bush said.
Mr. Bush said the government will purchase equity shares in banks to help institutions unfreeze lending and spur economic growth. Funds for the purchases, which may amount to $250 billion, will come from the recently passed $700 billion bank rescue bill.
"This is an essential short-term measure to ensure the viability of America's banking system," Bush said. "And the program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors."
Mr. Bush also said the Federal Deposit Insurance Corp. will temporarily guarantee most new debt issued by insured banks. He said that will make it easier for banks to borrow money, which can then be lent to consumers. The FDIC also will "immediately and temporarily" expand its insurance to cover every dollar in all noninterest-bearing transaction accounts, which are widely used by small businesses to cover day-to-day operations.
Under the last step announced by Mr. Bush, the Federal Reserve will finalize a program to serve as a buyer of last resort for commercial paper, an important source of short-term financing for businesses banks.
Mr. Bernanke said the U.S. will not "stand down" until financial system and prosperity restored. Mr. Paulson, in his own remarks, said financial institutions in the new program will limit executive compensation. He said that "government owning a stake in any private U.S. company is objectionable to most Americans," but said the alternative "of leaving businesses and consumers without access to financing is totally unacceptable."
The government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. -- including the soon-to-be acquired Merrill Lynch -- Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.
Getting a Grip on the Financial Crisis
• Real Time Economics: The Evolution of Henry Paulson
• Economists React: A Thumbs Up From Ivory Tower
• Treasury's stock-purchase plan
• FDIC's liquidity plan
• Paulson, Bernanke, Bair joint and individual remarks
• Bush remarks Tuesday morning
• Detail of commercial paper facility
• Commercial paper FAQs
• Treasury's Executive Compensation Rules
Related Articles
• Wash Wire: Bush Embraces Multilateral Intervention
• Real Time Econ: The Evolution of Henry Paulson
• Europe's Rescue Carries Huge Price Tag
• How the U.K. Rescue Plan Became a Banking Model
• Sumner Redstone Squeezed by Loan and Stock Price
Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Mr. Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government's response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.
Formulated jointly by the Treasury, the Fed and the FDIC, these moves announced Tuesday are designed to keep money flowing through the financial system, ensuring that banks continue lending to companies, consumers and each other. A freeze in these markets rippled through the economy and helped cause stocks to crater last week.
Along with the government's involvement come certain restrictions, such as caps on executive pay. For example, firms can't write new employment contracts containing golden parachutes and their ability to use certain executive salaries as a tax deduction is capped. These restrictions are relatively weak compared with what congressional Democrats had wanted when they approved this spending, a potential flash point.
Some critics also say Treasury should have formulated a comprehensive plan earlier in the crisis. Even if this move helps mend credit markets, the economy is likely to suffer in the months ahead from the aftershocks of the recent turmoil.
A central plank of these new efforts is a plan for the Treasury to take about $250 billion in equity stakes in potentially thousands of banks, using funds approved by Congress through the recently approved $700 billion bailout plan.
Treasury will buy $25 billion in preferred stock in Bank of America -- including Merrill Lynch -- as well as J.P. Morgan and Citigroup; between $20 billion and $25 billion in Wells Fargo; $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street.
The government will purchase preferred stock, an equity investment designed to avoid hurting existing shareholders and deterring new ones. Such shares typically don't come with voting rights. They will carry a 5% annual dividend that rises to 9% after five years, according to a person familiar with the matter. By investing in several big firms at once, the government hopes to avoid placing a stigma on any one firm for getting government help.
The plan will be structured to encourage firms to bring in private capital. For instance, firms returning capital to the government by 2009 may get better terms for the government's stake, a person familiar with the discussions said.
Among the other key components of the plan is the FDIC temporarily guarantee, for a fee, certain types of new debt called senior unsecured debt issued by banks and thrifts. This would apply to debt issued by June 30 with maturities up to three years. One problem plaguing credit markets has been a fear among financial institutions that it is unsafe to lend to each other even for periods of a few days. U.S. officials hope this guarantee removes that fear, which could bring down short-term lending rates, such as the London interbank offered rate, or Libor, a benchmark for consumer and business loans.
The FDIC is also temporarily offering banks unlimited deposit insurance for non-interest bearing bank accounts typically used by small businesses, through 2009. This would be voluntary for banks, and would extend the $250,000 per depositor limit lawmakers agreed on two weeks ago. To use these new powers, the FDIC is invoking a "systemic risk" clause in federal banking law that allows it to take extreme steps to prevent shocks to the economy.
The FDIC's central role in the plan is consistent with its presence during past banking crises, the Great Depression and the savings and loan crisis. Each crisis sparked a major boost in the agency's power.
The shift brings U.S. policy more in line with that of other countries. Monday, the U.K., Germany, France, Spain and Italy provided further details of measures to buy stakes in struggling banks and offer lending guarantees. The U.K., which first formulated such a plan, is planning to issue some £37 billion ($63.1 billion) in new government debt to pay for purchases of the common and preferred shares of three big banks.
“These are tough times for our economies. Yet we can be confident that we can work our way through these challenges.” President Bush in a joint statement with Prime Minister Berlusconi of Italy.
The U.S. plan to inject capital into banks is expected to be open to almost all such institutions, with a focus on getting the participation of the firms most important to the financial system, according to people familiar with the matter. Treasury's main goal is to attract private capital. To make sure private investors aren't scared away, it is expected to structure its investment on terms favorable to the banks and will inject capital in exchange for preferred shares or warrants, these people said.
The government's new focus is raising questions about why it didn't adopt such an approach sooner. Mr. Paulson actively opposed the idea of investing in banks because he worried about picking winners and losers, though Fed Chairman Ben Bernanke was an early advocate. Mr. Paulson was also concerned banks wouldn't participate because of the perceived stigma and the potential for the government to meddle in their affairs, according to people familiar with the matter.
Senior executives and advisers to some of the nation's leading banks pitched such a plan at various points earlier this summer but were rebuffed by officials at Treasury and the Fed, according to people familiar with the matter. Instead, Treasury initially marched ahead with a plan to buy distressed assets directly from banks.
House Democratic leaders, including Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank, held a closed-door session Monday with 11 economists and other advisers. The group threw its weight behind Treasury's decision to inject capital into the banking system.
"The consensus was so strong towards direct equity injections that there was literally no dissension on the point," said one of the invited economists, Jared Bernstein of the liberal Economic Policy Institute. "The only head-scratching is why did it take us so long to get here?"
Officials at the Treasury and Federal Reserve have been looking for a comprehensive approach to the credit crisis after a series of ad hoc interventions and say they didn't have the authority to make such a comprehensive move until Congress passed the bailout bill. The government's various moves, from saving mortgage giants Fannie Mae and Freddie Mac to letting Lehman Brothers Holdings Inc. fail, have confused investors and frozen many in place at a time when the banking system was desperate for fresh capital. That contributed to what in essence was a high-level run on Wall Street banks, with funding drying up overnight.
The government's hope is that the new plan will more thoroughly address the problems of ailing financial institutions and persuade private investors that government involvement won't come at their expense.
For troubled assets there is the Troubled Asset Relief Program, created by the $700 billion bailout bill, which gives the Treasury Department authority to acquire bad assets from banks and other financial institutions. TARP will also be used by Treasury when it puts new equity into banks.
The other steps, including the FDIC's role in guaranteeing new funds raised by banks and thrifts, are designed to address the way banks fund themselves, freeing them to start lending again. The Fed is expected to announce Tuesday that a separate plan to lend directly to companies and banks through instruments called commercial paper will start in about two weeks.
William Poole, former president of the Federal Reserve Bank of St. Louis, was a fierce critic of Treasury's initial plan to buy up distressed mortgage-backed securities. Such a scheme, he said, would lead banks to dump their worst assets on the taxpayers.
But Treasury's new tack may well do the trick, said Mr. Poole, now a senior fellow at the free-market-oriented Cato Institute.
"Investors need to be confident that the banks they're dealing with are unquestionably solvent, and it's in the interest of banks to assure investors that that's the case," he said. "One way banks can provide that assurance is to raise additional capital, in some combination of private and government capital."
Dean Baker, co-director of the left-of-center Center for Economic and Policy Research, argues the country may have turned a corner on the financial panic -- the fear that has kept banks and investors from making even the most prudent loans. "I think we're through the worst on that," he said. "Maybe I'll be proven wrong, but it really was at an extreme last week."
Blanket guarantees, however, might inspire banks to take unnecessary risks, warned Frederic Mishkin, a Columbia University economist who stepped down as Fed governor in August. "You don't want to give a guarantee to banks that are in trouble" that might try to gamble their way out of problems, he said. He says offering broad guarantees will require that U.S. officials more aggressively act to sort out good banks from bad banks.
One sticking point could come from Congress, which wrote into the original bailout bill requirements that Treasury tamp down executive pay. Rep. Frank said Monday he wants the government to set tough conditions for any company that receives a capital injection. If Mr. Paulson didn't enforce such rules, Mr. Frank said the Treasury secretary could be "making a big mistake."
—Michael M. Phillips, David Enrich, Daniel Fitzpatrick, Susanne Craig and Robin Sidel contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com, Damian Paletta at damian.paletta@wsj.com, Jon Hilsenrath at jon.hilsenrath@wsj.com and Aaron Lucchetti at aaron.lucchetti@wsj.com
I’m sure that our government will purchase toxic securities at some point. Think about what’s going to happen to our government when the economy doesn’t recover and it has all of this additional toxic debt on its balance sheet. We’re already insolvent – this isn’t going to help anything – except accelerate our government’s decline.
jg – Oct 14, 2008
____________
OCTOBER 14, 2008, 10:31 A.M. ET
U.S. Announces Plan to Buy Stakes in Largest Banks
Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort
By DEBORAH SOLOMON, DAMIAN PALETTA, JON HILSENRATH and AARON LUCCHETTI
WASHINGTON -- President George W. Bush announced Tuesday morning that the U.S. government is taking stakes in the nation's top financial institutions as part of a new plan to restore confidence to the battered U.S. banking system, a far-reaching effort that puts the government's guarantee behind the basic plumbing of financial markets.
FDIC Chairperson Sheila Bair speaks at a news conference as U.S. Treasury Secretary Henry Paulson (center) and Federal Reserve Chairman Ben Bernanke (right) look on.
"The efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover,'' President Bush said.
Mr. Bush said the government will purchase equity shares in banks to help institutions unfreeze lending and spur economic growth. Funds for the purchases, which may amount to $250 billion, will come from the recently passed $700 billion bank rescue bill.
"This is an essential short-term measure to ensure the viability of America's banking system," Bush said. "And the program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors."
Mr. Bush also said the Federal Deposit Insurance Corp. will temporarily guarantee most new debt issued by insured banks. He said that will make it easier for banks to borrow money, which can then be lent to consumers. The FDIC also will "immediately and temporarily" expand its insurance to cover every dollar in all noninterest-bearing transaction accounts, which are widely used by small businesses to cover day-to-day operations.
Under the last step announced by Mr. Bush, the Federal Reserve will finalize a program to serve as a buyer of last resort for commercial paper, an important source of short-term financing for businesses banks.
Mr. Bernanke said the U.S. will not "stand down" until financial system and prosperity restored. Mr. Paulson, in his own remarks, said financial institutions in the new program will limit executive compensation. He said that "government owning a stake in any private U.S. company is objectionable to most Americans," but said the alternative "of leaving businesses and consumers without access to financing is totally unacceptable."
The government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. -- including the soon-to-be acquired Merrill Lynch -- Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.
Getting a Grip on the Financial Crisis
• Real Time Economics: The Evolution of Henry Paulson
• Economists React: A Thumbs Up From Ivory Tower
• Treasury's stock-purchase plan
• FDIC's liquidity plan
• Paulson, Bernanke, Bair joint and individual remarks
• Bush remarks Tuesday morning
• Detail of commercial paper facility
• Commercial paper FAQs
• Treasury's Executive Compensation Rules
Related Articles
• Wash Wire: Bush Embraces Multilateral Intervention
• Real Time Econ: The Evolution of Henry Paulson
• Europe's Rescue Carries Huge Price Tag
• How the U.K. Rescue Plan Became a Banking Model
• Sumner Redstone Squeezed by Loan and Stock Price
Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Mr. Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government's response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.
Formulated jointly by the Treasury, the Fed and the FDIC, these moves announced Tuesday are designed to keep money flowing through the financial system, ensuring that banks continue lending to companies, consumers and each other. A freeze in these markets rippled through the economy and helped cause stocks to crater last week.
Along with the government's involvement come certain restrictions, such as caps on executive pay. For example, firms can't write new employment contracts containing golden parachutes and their ability to use certain executive salaries as a tax deduction is capped. These restrictions are relatively weak compared with what congressional Democrats had wanted when they approved this spending, a potential flash point.
Some critics also say Treasury should have formulated a comprehensive plan earlier in the crisis. Even if this move helps mend credit markets, the economy is likely to suffer in the months ahead from the aftershocks of the recent turmoil.
A central plank of these new efforts is a plan for the Treasury to take about $250 billion in equity stakes in potentially thousands of banks, using funds approved by Congress through the recently approved $700 billion bailout plan.
Treasury will buy $25 billion in preferred stock in Bank of America -- including Merrill Lynch -- as well as J.P. Morgan and Citigroup; between $20 billion and $25 billion in Wells Fargo; $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street.
The government will purchase preferred stock, an equity investment designed to avoid hurting existing shareholders and deterring new ones. Such shares typically don't come with voting rights. They will carry a 5% annual dividend that rises to 9% after five years, according to a person familiar with the matter. By investing in several big firms at once, the government hopes to avoid placing a stigma on any one firm for getting government help.
The plan will be structured to encourage firms to bring in private capital. For instance, firms returning capital to the government by 2009 may get better terms for the government's stake, a person familiar with the discussions said.
Among the other key components of the plan is the FDIC temporarily guarantee, for a fee, certain types of new debt called senior unsecured debt issued by banks and thrifts. This would apply to debt issued by June 30 with maturities up to three years. One problem plaguing credit markets has been a fear among financial institutions that it is unsafe to lend to each other even for periods of a few days. U.S. officials hope this guarantee removes that fear, which could bring down short-term lending rates, such as the London interbank offered rate, or Libor, a benchmark for consumer and business loans.
The FDIC is also temporarily offering banks unlimited deposit insurance for non-interest bearing bank accounts typically used by small businesses, through 2009. This would be voluntary for banks, and would extend the $250,000 per depositor limit lawmakers agreed on two weeks ago. To use these new powers, the FDIC is invoking a "systemic risk" clause in federal banking law that allows it to take extreme steps to prevent shocks to the economy.
The FDIC's central role in the plan is consistent with its presence during past banking crises, the Great Depression and the savings and loan crisis. Each crisis sparked a major boost in the agency's power.
The shift brings U.S. policy more in line with that of other countries. Monday, the U.K., Germany, France, Spain and Italy provided further details of measures to buy stakes in struggling banks and offer lending guarantees. The U.K., which first formulated such a plan, is planning to issue some £37 billion ($63.1 billion) in new government debt to pay for purchases of the common and preferred shares of three big banks.
“These are tough times for our economies. Yet we can be confident that we can work our way through these challenges.” President Bush in a joint statement with Prime Minister Berlusconi of Italy.
The U.S. plan to inject capital into banks is expected to be open to almost all such institutions, with a focus on getting the participation of the firms most important to the financial system, according to people familiar with the matter. Treasury's main goal is to attract private capital. To make sure private investors aren't scared away, it is expected to structure its investment on terms favorable to the banks and will inject capital in exchange for preferred shares or warrants, these people said.
The government's new focus is raising questions about why it didn't adopt such an approach sooner. Mr. Paulson actively opposed the idea of investing in banks because he worried about picking winners and losers, though Fed Chairman Ben Bernanke was an early advocate. Mr. Paulson was also concerned banks wouldn't participate because of the perceived stigma and the potential for the government to meddle in their affairs, according to people familiar with the matter.
Senior executives and advisers to some of the nation's leading banks pitched such a plan at various points earlier this summer but were rebuffed by officials at Treasury and the Fed, according to people familiar with the matter. Instead, Treasury initially marched ahead with a plan to buy distressed assets directly from banks.
House Democratic leaders, including Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank, held a closed-door session Monday with 11 economists and other advisers. The group threw its weight behind Treasury's decision to inject capital into the banking system.
"The consensus was so strong towards direct equity injections that there was literally no dissension on the point," said one of the invited economists, Jared Bernstein of the liberal Economic Policy Institute. "The only head-scratching is why did it take us so long to get here?"
Officials at the Treasury and Federal Reserve have been looking for a comprehensive approach to the credit crisis after a series of ad hoc interventions and say they didn't have the authority to make such a comprehensive move until Congress passed the bailout bill. The government's various moves, from saving mortgage giants Fannie Mae and Freddie Mac to letting Lehman Brothers Holdings Inc. fail, have confused investors and frozen many in place at a time when the banking system was desperate for fresh capital. That contributed to what in essence was a high-level run on Wall Street banks, with funding drying up overnight.
The government's hope is that the new plan will more thoroughly address the problems of ailing financial institutions and persuade private investors that government involvement won't come at their expense.
For troubled assets there is the Troubled Asset Relief Program, created by the $700 billion bailout bill, which gives the Treasury Department authority to acquire bad assets from banks and other financial institutions. TARP will also be used by Treasury when it puts new equity into banks.
The other steps, including the FDIC's role in guaranteeing new funds raised by banks and thrifts, are designed to address the way banks fund themselves, freeing them to start lending again. The Fed is expected to announce Tuesday that a separate plan to lend directly to companies and banks through instruments called commercial paper will start in about two weeks.
William Poole, former president of the Federal Reserve Bank of St. Louis, was a fierce critic of Treasury's initial plan to buy up distressed mortgage-backed securities. Such a scheme, he said, would lead banks to dump their worst assets on the taxpayers.
But Treasury's new tack may well do the trick, said Mr. Poole, now a senior fellow at the free-market-oriented Cato Institute.
"Investors need to be confident that the banks they're dealing with are unquestionably solvent, and it's in the interest of banks to assure investors that that's the case," he said. "One way banks can provide that assurance is to raise additional capital, in some combination of private and government capital."
Dean Baker, co-director of the left-of-center Center for Economic and Policy Research, argues the country may have turned a corner on the financial panic -- the fear that has kept banks and investors from making even the most prudent loans. "I think we're through the worst on that," he said. "Maybe I'll be proven wrong, but it really was at an extreme last week."
Blanket guarantees, however, might inspire banks to take unnecessary risks, warned Frederic Mishkin, a Columbia University economist who stepped down as Fed governor in August. "You don't want to give a guarantee to banks that are in trouble" that might try to gamble their way out of problems, he said. He says offering broad guarantees will require that U.S. officials more aggressively act to sort out good banks from bad banks.
One sticking point could come from Congress, which wrote into the original bailout bill requirements that Treasury tamp down executive pay. Rep. Frank said Monday he wants the government to set tough conditions for any company that receives a capital injection. If Mr. Paulson didn't enforce such rules, Mr. Frank said the Treasury secretary could be "making a big mistake."
—Michael M. Phillips, David Enrich, Daniel Fitzpatrick, Susanne Craig and Robin Sidel contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com, Damian Paletta at damian.paletta@wsj.com, Jon Hilsenrath at jon.hilsenrath@wsj.com and Aaron Lucchetti at aaron.lucchetti@wsj.com
Treasury Considers Stakes in Insurance Companies
Now we see that the Treasury is going to buy equity stakes in insurance companies with the bailout money. To date, not one ‘toxic’ security has been purchased. The treasury has been given a blank check – and instead of helping homeowners or actually buying distressed securities – they are buying stakes in all types of financial/banking companies. Why? I believe they are doing this to gain more control. The question is – what happens when things begin to get even worse?
jg
OCTOBER 24, 2008, 2:32 P.M. ET
Treasury Considers Stakes in Insurance Companies
By DEBORAH SOLOMON
WASHINGTON -- The Treasury Department is considering taking equity stakes in insurance companies, a sign of how the government's $700 billion program has become a potential piggybank for a range of troubled industries.
The availability of government cash is drawing requests from all corners, with insurance firms, automakers, state governments and transit agencies lobbying for a piece of Treasury's pie. While Treasury intended for the program to apply broadly, the growing requests could rapidly deplete the $700 billion, an amount that initially stunned many as being quite large.
Among those expected to benefit from Treasury's program are insurance firms. Most insurance companies are financially sound but have seen their long-term investments and stock prices hurt by the recent market turmoil.
Treasury wants insurance companies to participate in its program, dubbed TARP, and is considering taking equity stakes in certain firms, according to people familiar with the matter.
For now, however, only certain insurance firms would be eligible for a capital infusion. Under the terms of Treasury's program, insurers would have to have a financial institution holding company that was regulated at the federal level.
Insurers would also be able to sell its bad assets to the government under a separate element of the program.
Write to Deborah Solomon at deborah.solomon@wsj.com
jg
OCTOBER 24, 2008, 2:32 P.M. ET
Treasury Considers Stakes in Insurance Companies
By DEBORAH SOLOMON
WASHINGTON -- The Treasury Department is considering taking equity stakes in insurance companies, a sign of how the government's $700 billion program has become a potential piggybank for a range of troubled industries.
The availability of government cash is drawing requests from all corners, with insurance firms, automakers, state governments and transit agencies lobbying for a piece of Treasury's pie. While Treasury intended for the program to apply broadly, the growing requests could rapidly deplete the $700 billion, an amount that initially stunned many as being quite large.
Among those expected to benefit from Treasury's program are insurance firms. Most insurance companies are financially sound but have seen their long-term investments and stock prices hurt by the recent market turmoil.
Treasury wants insurance companies to participate in its program, dubbed TARP, and is considering taking equity stakes in certain firms, according to people familiar with the matter.
For now, however, only certain insurance firms would be eligible for a capital infusion. Under the terms of Treasury's program, insurers would have to have a financial institution holding company that was regulated at the federal level.
Insurers would also be able to sell its bad assets to the government under a separate element of the program.
Write to Deborah Solomon at deborah.solomon@wsj.com
Mergers, Acquisitions and the Bailout
As I’ve mentioned in previous posts, we haven’t seen any of the $700 billion bailout used to buy distressed securities. What we have seen is the U.S. Treasury buying equity stakes in banks and the possibility that this buyout will extend to insurance companies. As you will read in the articles below – one of the consequences of these actions is that banks are taking these funds and are planning to acquire other banks. It appears that the same scenario will play out with insurance companies. Those banks and insurance companies lucky enough to be ‘chosen’ will have a significant advantage over those without access to these funds. How would you like to be one of the banks/companies without government funding trying to fight off a takeover in this current business environment? If it doesn’t sound fair – that’s because it isn’t. Don’t think for a minute that this wasn’t planned. You are seeing a forced consolidation of banks and companies across the board.
In order to see what is really happening, you must look past all of the rhetoric. We were told that this bailout was absolutely necessary or we faced an economic meltdown. It was absolutely necessary to buy billions of dollars of ‘toxic’ securities or face the consequences. Well, no securities have been purchased and the economy hasn’t melted down yet. What has happened is that the Federal Reserve and the U.S. Treasury are gaining ever more control over our banks and corporations by buying equity in these companies. Today, the Federal Reserve began lending directly to corporations (see article below). So, what we actually see is our government and an international banking cartel gaining more control over us as industries are forced to consolidate and the government continues to buy equity stakes.
There are very few people that recognize that all of these problems (mortgage foreclosures, bankruptcies, reduced lending, stock market volatility, banking instability, etc.) are merely symptoms of the underlying disease – our monetary system. Central Banks and governments have the world focused on the symptoms – while the disease destroys the world’s economy. You can’t simply treat the symptoms and expect a cure. If you want to be cured – you must cure the disease. To truly get free of this mess – the Federal Reserve must be removed and the U.S. must begin to manage its own money supply.
Remember - based on what we’ve learned – our economy is destined to collapse. This is not a mystery to the leaders of the Fed and it’s not a mystery to the highest echelon of power within our government. So, when they tell us that we must submit to their demands to ‘save’ our economy, what is really happening? They are simply forcing us to go along with their plans – knowing that we are destined for collapse. They are now consolidating power (bank/corporation consolidation & government equity stakes) for the time when our economy does collapse. This will usher in a new round of regulation and control as we move closer to world government and a world financial system. As I’ve said many times before – very ingenious. Evil - but ingenious. This ‘beast’ continues to deceive the world – just as the Bible tells us it would do.
The last comment I’ll make in this post is this – do we really want our government managing banks and corporations? Think about this for a minute. This is the same group of people (the Federal Reserve, Congress, Senate, Presidential administrations, U.S. Treasury, etc) that have led our nation to the brink of economic ruin – which could eventually lead to the collapse of the United States. This is a group of people (the term ‘leaders’ definitely does not apply here – leaders are worthy of our respect) that is extremely corrupt and focused on worldly wealth and glory for themselves. Do we really want this same group of people to gain even more control over us? Would you really want George W. Bush, Nancy Pelosi, Barney Frank or Ben Bernanke running your company? The thought of this keeps me up at night.
I’m sure there will be much more to discuss in coming days. Things are moving so fast that it’s difficult to keep up with the changes.
jg – Oct 28, 2008
______________
October 28, 2008
Plan Could Push Insurers Into Mergers
More Corporate Lending Also Could Be Sparked Under the Government's Rescue Program
By LESLIE SCISM
If the Treasury Department's capital-infusion program for the banking sector expands to insurers, industry consolidation may follow.
Some of the life insurers whose names have emerged as supportive of a widening of the Treasury's $700 billion rescue program, the possibility of which emerged Friday, are considered by ratings firms to be financially healthy and capable of acquisitions. One is New York-based MetLife Inc. Industry analysts say it could be a contender to acquire at least some of the U.S. life-insurance operations of American International Group Inc.
The financial-services conglomerate has said it is trying to sell business units, including these and part of its foreign life-insurance operations, to pay back an $85 billion rescue loan it received last month from the federal government in exchange an 80% equity stake. That rescue, by the Federal Reserve, is separate from the $700 billion Treasury program.
Raising large sums of money for acquisitions is a tough challenge for any financial company right now, with credit markets still tight and stocks beaten down. Analysts say the infusion of low-cost government capital into a potential acquirer could prove crucial for AIG's efforts to strike deals in the months ahead.
A MetLife spokesman said the company wouldn't comment on any potential acquisition plans. An AIG spokesman said: "AIG is moving forward aggressively with its plan to permanently resolve its liquidity problems, sell a number of our world-class businesses and repay the Fed loan. We also continue to evaluate other possible options to restore AIG as a healthy competitor." He declined to elaborate.
Banking-industry analysts interpreted Friday's announcement that PNC Financial Services Group Inc. has agreed to acquire National City Corp. as an indication that the government is using the rescue plan as ammunition to push weak banks into the arms of strong ones. PNC will sell $7.7 billion of preferred shares and warrants to the Treasury Department to finance the stock-and-cash deal.
Colin Devine, a stock analyst at Citigroup Global Markets, said in a note to clients Monday that he anticipates "a wave of M&A activity" among life insurers, with Treasury infusions taking "the form of facilitated deal financing such as" PNC will receive. He rates MetLife a top pick, saying it has a strong capital position and is "uniquely situated" to acquire U.S. units from AIG. MetLife shares rose 3 cents, or 0.11%, to $26.21 Monday.
Meanwhile, Evan Greenberg, chairman of trade group American Insurance Association, said a substantial majority of AIA's members "do not support the inclusion of property-casualty insurers" in the Treasury program and wouldn't participate if it becomes available. Mr. Greenberg, chairman of ACE Group, said AIA members are "well-capitalized." Members include Chubb Corp., Travelers Cos. and W. R. Berkley Corp. Property-casualty carriers tend to have more-liquid investments than life insurers, and their core businesses aren't as volatile as the overall economy because cars, homes and businesses continue to be insured.
One goal of any potential expansion of the Treasury program appears to be trying to ramp up the insurance industry's role as a lender.
On Sunday, New York Life Insurance Co., one of the highest-rated insurers in the U.S., said that Treasury officials recently asked it and others in the life-insurance industry "for help in developing solutions for strengthening the financial system. We agreed to work with other industry leaders and Treasury so we could play a constructive role in helping shape this important discussion." The insurer, which is mutually owned, doesn't require additional capital and hasn't made any decision to accept capital, if offered, a spokesman said.
Write to Leslie Scism at leslie.scism@wsj.com
______________
OCTOBER 28, 2008
U.S. May Offer GM $5 Billion Loan
By DEBORAH SOLOMON and STEPHEN POWER
Wall St. Journal
The U.S. Department of Energy is working to release $5 billion in loans to General Motors Corp., according to a person familiar with the matter, a move that could help ease the way for the auto maker's discussed merger with Chrysler LLC.
GM and Chrysler's majority owner, Cerberus Capital Management LP, have been negotiating a complex deal in which GM would end up owning its smaller Detroit rival, but the parties have struggled to line up financing. The combined entity would need about $10 billion in new equity to cover the cost of laying off workers, closing plants and integrating the two companies, according to people involved in the talks.
The $5 billion would come from the pool of $25 billion in low-interest loans that was approved by Congress and is being administered by the Energy Department. The loans are aimed at helping Detroit retool plants to meet new fuel-efficiency standards. It isn't clear how quickly the money could be made available or whether it would come with strings attached.
Although the loans are supposed to speed the availability of fuel-saving technologies, the money could help steady GM's finances and make it easier for the struggling auto giant and Cerberus to persuade investors to back a deal. Any transaction would involve both Chrysler and GMAC LLC, which loans money for car purchases and other purposes. Cerberus owns 51% of GMAC and GM owns the rest.
Both GM and Chrysler are losing money. Analysts believe each company could start to run short of cash within 12 months.
The auto makers and Michigan's congressional delegation have proposed at least three plans in recent weeks to unlock federal money for a GM-Chrysler merger. One is to seek an equity investment from the government. Another would draw money for the auto makers from the $700 billion Troubled Asset Relief Program, or TARP, set up ostensibly to help financial firms. A third possibility is accelerating the $25 billion in loans that the Energy Department is managing.
On Monday, White House spokeswoman Dana Perino, speaking of GM, Chrysler and Ford Motor Co., said "it's a possibility that they could qualify" for Treasury funds under the $700 billion rescue fund, either through a direct investment or participation in the administration's asset-purchase plan.
Treasury officials, however, are for now playing down that possibility, noting that any immediate federal aid will likely come from the Energy Department.
An Energy Department spokeswoman said Monday the agency is "in the process of developing the rules for the loan program" and that it would be "premature" to set a timetable for when the funds will be available.
The agency has come under criticism from prominent Michigan lawmakers in both parties after initially saying in September it could take "at least six to 18 months or more" to disburse the loans.
—John D. Stoll and Jeffrey McCracken contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com and Stephen Power at stephen.power@wsj.com
______________
OCTOBER 28, 2008
Federal Reserve Starts Lending Plan
By ANUSHA SHRIVASTAVA
Wall St. Journal
The Federal Reserve has kicked off a much-awaited lending program aimed at jump-starting the $1.45 trillion commercial-paper market, but investors say it could take days or weeks before short-term financing for U.S. companies loosens up.
Under its new Commercial Paper Funding Facility, the Fed is offering to lend money to highly rated companies for as long as three months. The goals are to persuade investors to lend to top-tier companies and give borrowers a backstop if funds can't be obtained in the open market.
The program's impact was muted Monday. Fewer companies came to market looking for financing than last week, and most were limited to uncomfortably short overnight loans. Rates rose modestly for debt maturing in 30 days.
"It will be a few more days before we have a good idea on the impact," said Ira Jersey, interest-rate strategist at Credit Suisse.
The test will be whether rates established in the commercial-paper market are lower than the somewhat punitive rates on the Fed's loans, which are intended to be a source of financing in emergencies rather than the first stop for companies seeking funds.
A related indicator of success will be how little companies borrow from the Fed. Data on borrowings will be released Thursdays.
For Monday, the Fed set its rates on three-month commercial paper at 2.88%, including a surcharge. For asset-backed commercial paper, the rate was set at 3.88%. New rates will be set daily.
The few companies looking for three-month loans in the open market Monday -- including heavy issuers American Express Co. and General Electric Co. -- offered to pay rates similar to those set by the Fed, according to Kevin Giddis, head of fixed income at Morgan Keegan.
It isn't clear whether investors agreed to lend at those rates.
GE and American Express have registered for the new program, giving them the option of selling to the Fed. They didn't respond to calls about whether they plan to actually use it. The Fed has said several dozen companies have signed up for its commercial-paper program, but isn't naming them.
Market participants also are waiting for the start-up of another Fed program -- the Money Market Investment Funding Facility -- which is aimed at supporting money-market funds, the single largest group of investors in the commercial-paper market.
This facility will buy commercial paper and other short-term debt from money-market funds, in theory giving them confidence that they can get out of investments if they need to raise cash to cover redemption requests from their own investors.
Money-market funds have shied away from the commercial-paper market since Lehman Brothers collapsed in mid-September. Investors have been more reluctant to take on the new debt companies need to issue to fund basic operating needs such as rent and supplies.
—Kellie Geressy contributed to the report.
Write to Anusha Shrivastava at anusha.shrivastava@dowjones.com
In order to see what is really happening, you must look past all of the rhetoric. We were told that this bailout was absolutely necessary or we faced an economic meltdown. It was absolutely necessary to buy billions of dollars of ‘toxic’ securities or face the consequences. Well, no securities have been purchased and the economy hasn’t melted down yet. What has happened is that the Federal Reserve and the U.S. Treasury are gaining ever more control over our banks and corporations by buying equity in these companies. Today, the Federal Reserve began lending directly to corporations (see article below). So, what we actually see is our government and an international banking cartel gaining more control over us as industries are forced to consolidate and the government continues to buy equity stakes.
There are very few people that recognize that all of these problems (mortgage foreclosures, bankruptcies, reduced lending, stock market volatility, banking instability, etc.) are merely symptoms of the underlying disease – our monetary system. Central Banks and governments have the world focused on the symptoms – while the disease destroys the world’s economy. You can’t simply treat the symptoms and expect a cure. If you want to be cured – you must cure the disease. To truly get free of this mess – the Federal Reserve must be removed and the U.S. must begin to manage its own money supply.
Remember - based on what we’ve learned – our economy is destined to collapse. This is not a mystery to the leaders of the Fed and it’s not a mystery to the highest echelon of power within our government. So, when they tell us that we must submit to their demands to ‘save’ our economy, what is really happening? They are simply forcing us to go along with their plans – knowing that we are destined for collapse. They are now consolidating power (bank/corporation consolidation & government equity stakes) for the time when our economy does collapse. This will usher in a new round of regulation and control as we move closer to world government and a world financial system. As I’ve said many times before – very ingenious. Evil - but ingenious. This ‘beast’ continues to deceive the world – just as the Bible tells us it would do.
The last comment I’ll make in this post is this – do we really want our government managing banks and corporations? Think about this for a minute. This is the same group of people (the Federal Reserve, Congress, Senate, Presidential administrations, U.S. Treasury, etc) that have led our nation to the brink of economic ruin – which could eventually lead to the collapse of the United States. This is a group of people (the term ‘leaders’ definitely does not apply here – leaders are worthy of our respect) that is extremely corrupt and focused on worldly wealth and glory for themselves. Do we really want this same group of people to gain even more control over us? Would you really want George W. Bush, Nancy Pelosi, Barney Frank or Ben Bernanke running your company? The thought of this keeps me up at night.
I’m sure there will be much more to discuss in coming days. Things are moving so fast that it’s difficult to keep up with the changes.
jg – Oct 28, 2008
______________
October 28, 2008
Plan Could Push Insurers Into Mergers
More Corporate Lending Also Could Be Sparked Under the Government's Rescue Program
By LESLIE SCISM
If the Treasury Department's capital-infusion program for the banking sector expands to insurers, industry consolidation may follow.
Some of the life insurers whose names have emerged as supportive of a widening of the Treasury's $700 billion rescue program, the possibility of which emerged Friday, are considered by ratings firms to be financially healthy and capable of acquisitions. One is New York-based MetLife Inc. Industry analysts say it could be a contender to acquire at least some of the U.S. life-insurance operations of American International Group Inc.
The financial-services conglomerate has said it is trying to sell business units, including these and part of its foreign life-insurance operations, to pay back an $85 billion rescue loan it received last month from the federal government in exchange an 80% equity stake. That rescue, by the Federal Reserve, is separate from the $700 billion Treasury program.
Raising large sums of money for acquisitions is a tough challenge for any financial company right now, with credit markets still tight and stocks beaten down. Analysts say the infusion of low-cost government capital into a potential acquirer could prove crucial for AIG's efforts to strike deals in the months ahead.
A MetLife spokesman said the company wouldn't comment on any potential acquisition plans. An AIG spokesman said: "AIG is moving forward aggressively with its plan to permanently resolve its liquidity problems, sell a number of our world-class businesses and repay the Fed loan. We also continue to evaluate other possible options to restore AIG as a healthy competitor." He declined to elaborate.
Banking-industry analysts interpreted Friday's announcement that PNC Financial Services Group Inc. has agreed to acquire National City Corp. as an indication that the government is using the rescue plan as ammunition to push weak banks into the arms of strong ones. PNC will sell $7.7 billion of preferred shares and warrants to the Treasury Department to finance the stock-and-cash deal.
Colin Devine, a stock analyst at Citigroup Global Markets, said in a note to clients Monday that he anticipates "a wave of M&A activity" among life insurers, with Treasury infusions taking "the form of facilitated deal financing such as" PNC will receive. He rates MetLife a top pick, saying it has a strong capital position and is "uniquely situated" to acquire U.S. units from AIG. MetLife shares rose 3 cents, or 0.11%, to $26.21 Monday.
Meanwhile, Evan Greenberg, chairman of trade group American Insurance Association, said a substantial majority of AIA's members "do not support the inclusion of property-casualty insurers" in the Treasury program and wouldn't participate if it becomes available. Mr. Greenberg, chairman of ACE Group, said AIA members are "well-capitalized." Members include Chubb Corp., Travelers Cos. and W. R. Berkley Corp. Property-casualty carriers tend to have more-liquid investments than life insurers, and their core businesses aren't as volatile as the overall economy because cars, homes and businesses continue to be insured.
One goal of any potential expansion of the Treasury program appears to be trying to ramp up the insurance industry's role as a lender.
On Sunday, New York Life Insurance Co., one of the highest-rated insurers in the U.S., said that Treasury officials recently asked it and others in the life-insurance industry "for help in developing solutions for strengthening the financial system. We agreed to work with other industry leaders and Treasury so we could play a constructive role in helping shape this important discussion." The insurer, which is mutually owned, doesn't require additional capital and hasn't made any decision to accept capital, if offered, a spokesman said.
Write to Leslie Scism at leslie.scism@wsj.com
______________
OCTOBER 28, 2008
U.S. May Offer GM $5 Billion Loan
By DEBORAH SOLOMON and STEPHEN POWER
Wall St. Journal
The U.S. Department of Energy is working to release $5 billion in loans to General Motors Corp., according to a person familiar with the matter, a move that could help ease the way for the auto maker's discussed merger with Chrysler LLC.
GM and Chrysler's majority owner, Cerberus Capital Management LP, have been negotiating a complex deal in which GM would end up owning its smaller Detroit rival, but the parties have struggled to line up financing. The combined entity would need about $10 billion in new equity to cover the cost of laying off workers, closing plants and integrating the two companies, according to people involved in the talks.
The $5 billion would come from the pool of $25 billion in low-interest loans that was approved by Congress and is being administered by the Energy Department. The loans are aimed at helping Detroit retool plants to meet new fuel-efficiency standards. It isn't clear how quickly the money could be made available or whether it would come with strings attached.
Although the loans are supposed to speed the availability of fuel-saving technologies, the money could help steady GM's finances and make it easier for the struggling auto giant and Cerberus to persuade investors to back a deal. Any transaction would involve both Chrysler and GMAC LLC, which loans money for car purchases and other purposes. Cerberus owns 51% of GMAC and GM owns the rest.
Both GM and Chrysler are losing money. Analysts believe each company could start to run short of cash within 12 months.
The auto makers and Michigan's congressional delegation have proposed at least three plans in recent weeks to unlock federal money for a GM-Chrysler merger. One is to seek an equity investment from the government. Another would draw money for the auto makers from the $700 billion Troubled Asset Relief Program, or TARP, set up ostensibly to help financial firms. A third possibility is accelerating the $25 billion in loans that the Energy Department is managing.
On Monday, White House spokeswoman Dana Perino, speaking of GM, Chrysler and Ford Motor Co., said "it's a possibility that they could qualify" for Treasury funds under the $700 billion rescue fund, either through a direct investment or participation in the administration's asset-purchase plan.
Treasury officials, however, are for now playing down that possibility, noting that any immediate federal aid will likely come from the Energy Department.
An Energy Department spokeswoman said Monday the agency is "in the process of developing the rules for the loan program" and that it would be "premature" to set a timetable for when the funds will be available.
The agency has come under criticism from prominent Michigan lawmakers in both parties after initially saying in September it could take "at least six to 18 months or more" to disburse the loans.
—John D. Stoll and Jeffrey McCracken contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com and Stephen Power at stephen.power@wsj.com
______________
OCTOBER 28, 2008
Federal Reserve Starts Lending Plan
By ANUSHA SHRIVASTAVA
Wall St. Journal
The Federal Reserve has kicked off a much-awaited lending program aimed at jump-starting the $1.45 trillion commercial-paper market, but investors say it could take days or weeks before short-term financing for U.S. companies loosens up.
Under its new Commercial Paper Funding Facility, the Fed is offering to lend money to highly rated companies for as long as three months. The goals are to persuade investors to lend to top-tier companies and give borrowers a backstop if funds can't be obtained in the open market.
The program's impact was muted Monday. Fewer companies came to market looking for financing than last week, and most were limited to uncomfortably short overnight loans. Rates rose modestly for debt maturing in 30 days.
"It will be a few more days before we have a good idea on the impact," said Ira Jersey, interest-rate strategist at Credit Suisse.
The test will be whether rates established in the commercial-paper market are lower than the somewhat punitive rates on the Fed's loans, which are intended to be a source of financing in emergencies rather than the first stop for companies seeking funds.
A related indicator of success will be how little companies borrow from the Fed. Data on borrowings will be released Thursdays.
For Monday, the Fed set its rates on three-month commercial paper at 2.88%, including a surcharge. For asset-backed commercial paper, the rate was set at 3.88%. New rates will be set daily.
The few companies looking for three-month loans in the open market Monday -- including heavy issuers American Express Co. and General Electric Co. -- offered to pay rates similar to those set by the Fed, according to Kevin Giddis, head of fixed income at Morgan Keegan.
It isn't clear whether investors agreed to lend at those rates.
GE and American Express have registered for the new program, giving them the option of selling to the Fed. They didn't respond to calls about whether they plan to actually use it. The Fed has said several dozen companies have signed up for its commercial-paper program, but isn't naming them.
Market participants also are waiting for the start-up of another Fed program -- the Money Market Investment Funding Facility -- which is aimed at supporting money-market funds, the single largest group of investors in the commercial-paper market.
This facility will buy commercial paper and other short-term debt from money-market funds, in theory giving them confidence that they can get out of investments if they need to raise cash to cover redemption requests from their own investors.
Money-market funds have shied away from the commercial-paper market since Lehman Brothers collapsed in mid-September. Investors have been more reluctant to take on the new debt companies need to issue to fund basic operating needs such as rent and supplies.
—Kellie Geressy contributed to the report.
Write to Anusha Shrivastava at anusha.shrivastava@dowjones.com
Most Presidents Ignore the Constitution
Pay very close attention to what this article is telling us – because our government’s disregard of our constitution is getting worse – much worse. I’m sure that at some point, we’ll be told that the Constitution is completely outdated and ill-suited to deal with whatever calamity is brought upon us (we see a lot of this already). Remember – it is this ‘old fashioned’ document that has held powerful interests in check for over two hundred years. There’s a reason the Constitution adds checks and balances to our government. Too much power is a very bad thing in this evil world. The founders of our nation were wise – they were not naïve people. They knew that over time, powerful interests could try to takeover the United States of America – from within.
If you study the Illuminati – you’ll see that there are two major obstacles to their plan for world government – the American Constitution and the American middle class. Our constitution creates a Republic where everyone has inalienable rights – not good if you want to control the world. You can’t have inalienable rights granted to the world’s people if you plan to rule the world with an iron fist. Our Constitution will not allow a small group of people to control the world. This is why it’s a stumbling block to the global elite.
The question becomes – if you’re trying to create a world government and the world’s most powerful Constitution stands in the way – how do you remove this Constitution? Do you make a direct assault and begin undermining the Constitution by direct legislation or Executive power? Not in this country. Nothing would cause us to rise up in defiance like a direct assault on our freedom. No – this would not be very effective and would certainly alert everyone to your hidden plans. The best way to begin to remove the rights granted by our Constitution is to do it very deceptively. Let’s make everyone believe that it’s necessary to remove the rights and freedoms provided to the American people – in the name of security. Let’s remove these freedoms under the guise of protection. Let’s create a perceived threat (a problem) and then propose a solution that seemingly solves the problem – while removing Constitutional rights. Now you know why the events of September 11, 2001 took place. In no time at all – the Patriot Act was passed by Congress. The Military Commissions Act then followed. George W. Bush has also signed many Executive Orders (bypassing Congress) that basically creates a dictatorship in the event of another ‘national disaster’. The rights granted by our Constitution are being systematically removed. Once again I must say that it’s an ingenious plan. Evil, but ingenious.
Why is the American middle class a threat? We (a very large group of people) wield too much political and economic power. How do you knock down such a large group of people? Would a direct assault work against us? No – not a chance. Again, deception must be used to overtake such a large group of educated people. How best to do this? If you control a nation’s economy – do you not control the people to a certain extent? You might let them focus on wealth and all of the wonderful things that wealth brings – for a time. When they have become soft and easily manipulated – you then pull the rug out from under them. Take away their wealth and their security – and watch them wither. We have placed our faith – not with our Creator – but with our money. If you take away someone’s money who is focused on wealth – you leave them with nothing. Will they not do whatever you ask in an attempt to get their wealth back – whatever the cost? You are now beginning to understand the Lord’s warnings about wealth. Wealth can come and it can go – do not put your faith in money – do not let it control you. Remember, we are ultimately fighting an evil, spiritual being. He knows what drives you. He knows where your weaknesses are.
What happens if you take away the wealth of a true believer? Does the world come crashing down? No – not at all. A child of God views a trial in this world as a test. A test that, once endured, will strengthen our faith. If we are given wealth, we will use it according to the Lord’s will to advance His kingdom. If we do not have wealth, we will still do whatever we can for the Lord. We are not tossed around by the world – it holds no power over us. Take away my wealth – fine. The Lord will provide. Try to force me to adhere to unbiblical doctrine? Try to make me worship something other than the One, true God? Now you’ve got a problem. I will not – cannot – proclaim something other than the Lord’s Word. I will not – cannot – worship something, anything – other than my Creator. Will not happen – ever. Threats will not work, persecution will not work, taking away my wealth will not work – because my focus is no longer on this world. I have been promised something greater – and that is where my treasure lies.
The following is an excerpt from the Article below. It speaks to two things – 1) our government is violating the constitution with the recent bailout and 2) Raiding the U.S. Treasury is a very bad idea. If you remember – one of the very first posts on this blog related to Alexander Tyler’s study of democracy and why all democracies have eventually failed. We’re watching the theory play out before us.
“The $700 billion bailout of large banks that Congress recently enacted runs afoul of virtually all these constitutional principles. It directly benefits a few, not everyone. We already know that the favored banks that received cash from taxpayers have used it to retire their own debt. It is private welfare. It violates the principle of equal protection: Why help Bank of America and not Lehman Brothers? It permits federal ownership of assets or debt that puts the government at odds with others in the free market. It permits the government to tilt the playing field to favor its patrons (like J.P. Morgan Chase, in which it has invested taxpayer dollars) and to disfavor those who compete with its patrons (like the perfectly lawful hedge funds which will not have the taxpayers relieve their debts).
Perhaps the only public agreement that Jefferson and Hamilton had about the Constitution was that the federal Treasury would be raided and the free market would expire if the Treasury became a public trough. If it does, the voters will send to Congress those whom they expect will fleece the Treasury for them. That's why the Founders wrote such strict legislating and spending limitations into the Constitution.”
jg – October 29, 2008
________________________
OCTOBER 29, 2008
Most Presidents Ignore the Constitution
The government we have today is something the Founders could never have imagined.
By ANDREW P. NAPOLITANO
Wall St. Journal
In a radio interview in 2001, then-Illinois State Sen. Barack Obama noted -- somewhat ruefully -- that the same Supreme Court that ordered political and educational equality in the 1960s and 1970s did not bring about economic equality as well. Although Mr. Obama said he could come up with arguments for the constitutionality of such action, the plain meaning of the Constitution quite obviously prohibits it.
Mr. Obama is hardly alone in his expansive view of legitimate government. During the past month, Sen. John McCain (who, like Sen. Obama, voted in favor of the $700 billion bank bailout) has been advocating that $300 billion be spent to pay the monthly mortgage payments of those in danger of foreclosure. The federal government is legally powerless to do that, as well.
When Franklin Delano Roosevelt first proposed legislation that authorized the secretary of agriculture to engage in Soviet-style central planning -- a program so rigid that it regulated how much wheat a homeowner could grow for his own family's consumption -- he rejected arguments of unconstitutionality. He proclaimed that the Constitution was "quaint" and written in the "horse and buggy era," and predicted the public and the courts would agree with him.
Remember that FDR had taken -- and either Mr. Obama or Mr. McCain will soon take -- the oath to uphold that old-fashioned document, the one from which all presidential powers come.
Unfortunately, these presidential attitudes about the Constitution are par for the course. Beginning with John Adams, and proceeding to Abraham Lincoln, Woodrow Wilson and George W. Bush, Congress has enacted and the president has signed laws that criminalized political speech, suspended habeas corpus, compelled support for war, forbade freedom of contract, allowed the government to spy on Americans without a search warrant, and used taxpayer dollars to shore up failing private banks.
All of this legislation -- merely tips of an unconstitutional Big Government iceberg -- is so obviously in conflict with the plain words of the Constitution that one wonders how Congress gets away with it.
In virtually every generation and during virtually every presidency (Jefferson, Jackson and Cleveland are exceptions that come to mind) the popular branches of government have expanded their power. The air you breathe, the water you drink, the size of your toilet tank, the water pressure in your shower, the words you can speak under oath and in private, how your physician treats your illness, what your children study in grade school, how fast you can drive your car, and what you can drink before you drive it are all regulated by federal law. Congress has enacted over 4,000 federal crimes and written or authorized over one million pages of laws and regulations. Worse, we are expected by law to understand all of it.
The truth is that the Constitution grants Congress 17 specific (or "delegated") powers. And it commands in the Ninth and 10th Amendments that the powers not articulated and thus not delegated by the Constitution to Congress be reserved to the states and the people.
What's more, Congress can only use its delegated powers to legislate for the general welfare, meaning it cannot spend tax dollars on individuals or selected entities, but only for all of us. That is, it must spend in such a manner -- a post office, a military installation, a courthouse, for example -- that directly enhances everyone's welfare within the 17 delegated areas of congressional authority.
And Congress cannot deny the equal protection of the laws. Thus, it must treat similarly situated persons or entities in a similar manner. It cannot write laws that favor its political friends and burden its political enemies.
There is no power in the Constitution for the federal government to enter the marketplace since, when it does, it will favor itself over its competition. The Contracts Clause (the states cannot interfere with private contracts, like mortgages), the Takings Clause (no government can take away property, like real estate or shares of stock, without paying a fair market value for it and putting it to a public use), and the Due Process Clause (no government can take away a right or obligation, like collecting or paying a debt, or enforcing a contract, without a fair trial) together mandate a free market, regulated only to keep it fair and competitive.
It is clear that the Framers wrote a Constitution as a result of which contracts would be enforced, risk would be real, choices would be free and have consequences, and private property would be sacrosanct.
The $700 billion bailout of large banks that Congress recently enacted runs afoul of virtually all these constitutional principles. It directly benefits a few, not everyone. We already know that the favored banks that received cash from taxpayers have used it to retire their own debt. It is private welfare. It violates the principle of equal protection: Why help Bank of America and not Lehman Brothers? It permits federal ownership of assets or debt that puts the government at odds with others in the free market. It permits the government to tilt the playing field to favor its patrons (like J.P. Morgan Chase, in which it has invested taxpayer dollars) and to disfavor those who compete with its patrons (like the perfectly lawful hedge funds which will not have the taxpayers relieve their debts).
Perhaps the only public agreement that Jefferson and Hamilton had about the Constitution was that the federal Treasury would be raided and the free market would expire if the Treasury became a public trough. If it does, the voters will send to Congress those whom they expect will fleece the Treasury for them. That's why the Founders wrote such strict legislating and spending limitations into the Constitution.
Everyone in government takes an oath to uphold the Constitution. But few do so. Do the people we send to the federal government recognize any limits today on Congress's power to legislate? The answer is: Yes, their own perception of whatever they can get away with.
Mr. Napolitano, who served on the bench of the Superior Court of New Jersey between 1987 and 1995, is the senior judicial analyst at the Fox News Channel. His latest book is "A Nation of Sheep" (Nelson, 2007).
If you study the Illuminati – you’ll see that there are two major obstacles to their plan for world government – the American Constitution and the American middle class. Our constitution creates a Republic where everyone has inalienable rights – not good if you want to control the world. You can’t have inalienable rights granted to the world’s people if you plan to rule the world with an iron fist. Our Constitution will not allow a small group of people to control the world. This is why it’s a stumbling block to the global elite.
The question becomes – if you’re trying to create a world government and the world’s most powerful Constitution stands in the way – how do you remove this Constitution? Do you make a direct assault and begin undermining the Constitution by direct legislation or Executive power? Not in this country. Nothing would cause us to rise up in defiance like a direct assault on our freedom. No – this would not be very effective and would certainly alert everyone to your hidden plans. The best way to begin to remove the rights granted by our Constitution is to do it very deceptively. Let’s make everyone believe that it’s necessary to remove the rights and freedoms provided to the American people – in the name of security. Let’s remove these freedoms under the guise of protection. Let’s create a perceived threat (a problem) and then propose a solution that seemingly solves the problem – while removing Constitutional rights. Now you know why the events of September 11, 2001 took place. In no time at all – the Patriot Act was passed by Congress. The Military Commissions Act then followed. George W. Bush has also signed many Executive Orders (bypassing Congress) that basically creates a dictatorship in the event of another ‘national disaster’. The rights granted by our Constitution are being systematically removed. Once again I must say that it’s an ingenious plan. Evil, but ingenious.
Why is the American middle class a threat? We (a very large group of people) wield too much political and economic power. How do you knock down such a large group of people? Would a direct assault work against us? No – not a chance. Again, deception must be used to overtake such a large group of educated people. How best to do this? If you control a nation’s economy – do you not control the people to a certain extent? You might let them focus on wealth and all of the wonderful things that wealth brings – for a time. When they have become soft and easily manipulated – you then pull the rug out from under them. Take away their wealth and their security – and watch them wither. We have placed our faith – not with our Creator – but with our money. If you take away someone’s money who is focused on wealth – you leave them with nothing. Will they not do whatever you ask in an attempt to get their wealth back – whatever the cost? You are now beginning to understand the Lord’s warnings about wealth. Wealth can come and it can go – do not put your faith in money – do not let it control you. Remember, we are ultimately fighting an evil, spiritual being. He knows what drives you. He knows where your weaknesses are.
What happens if you take away the wealth of a true believer? Does the world come crashing down? No – not at all. A child of God views a trial in this world as a test. A test that, once endured, will strengthen our faith. If we are given wealth, we will use it according to the Lord’s will to advance His kingdom. If we do not have wealth, we will still do whatever we can for the Lord. We are not tossed around by the world – it holds no power over us. Take away my wealth – fine. The Lord will provide. Try to force me to adhere to unbiblical doctrine? Try to make me worship something other than the One, true God? Now you’ve got a problem. I will not – cannot – proclaim something other than the Lord’s Word. I will not – cannot – worship something, anything – other than my Creator. Will not happen – ever. Threats will not work, persecution will not work, taking away my wealth will not work – because my focus is no longer on this world. I have been promised something greater – and that is where my treasure lies.
The following is an excerpt from the Article below. It speaks to two things – 1) our government is violating the constitution with the recent bailout and 2) Raiding the U.S. Treasury is a very bad idea. If you remember – one of the very first posts on this blog related to Alexander Tyler’s study of democracy and why all democracies have eventually failed. We’re watching the theory play out before us.
“The $700 billion bailout of large banks that Congress recently enacted runs afoul of virtually all these constitutional principles. It directly benefits a few, not everyone. We already know that the favored banks that received cash from taxpayers have used it to retire their own debt. It is private welfare. It violates the principle of equal protection: Why help Bank of America and not Lehman Brothers? It permits federal ownership of assets or debt that puts the government at odds with others in the free market. It permits the government to tilt the playing field to favor its patrons (like J.P. Morgan Chase, in which it has invested taxpayer dollars) and to disfavor those who compete with its patrons (like the perfectly lawful hedge funds which will not have the taxpayers relieve their debts).
Perhaps the only public agreement that Jefferson and Hamilton had about the Constitution was that the federal Treasury would be raided and the free market would expire if the Treasury became a public trough. If it does, the voters will send to Congress those whom they expect will fleece the Treasury for them. That's why the Founders wrote such strict legislating and spending limitations into the Constitution.”
jg – October 29, 2008
________________________
OCTOBER 29, 2008
Most Presidents Ignore the Constitution
The government we have today is something the Founders could never have imagined.
By ANDREW P. NAPOLITANO
Wall St. Journal
In a radio interview in 2001, then-Illinois State Sen. Barack Obama noted -- somewhat ruefully -- that the same Supreme Court that ordered political and educational equality in the 1960s and 1970s did not bring about economic equality as well. Although Mr. Obama said he could come up with arguments for the constitutionality of such action, the plain meaning of the Constitution quite obviously prohibits it.
Mr. Obama is hardly alone in his expansive view of legitimate government. During the past month, Sen. John McCain (who, like Sen. Obama, voted in favor of the $700 billion bank bailout) has been advocating that $300 billion be spent to pay the monthly mortgage payments of those in danger of foreclosure. The federal government is legally powerless to do that, as well.
When Franklin Delano Roosevelt first proposed legislation that authorized the secretary of agriculture to engage in Soviet-style central planning -- a program so rigid that it regulated how much wheat a homeowner could grow for his own family's consumption -- he rejected arguments of unconstitutionality. He proclaimed that the Constitution was "quaint" and written in the "horse and buggy era," and predicted the public and the courts would agree with him.
Remember that FDR had taken -- and either Mr. Obama or Mr. McCain will soon take -- the oath to uphold that old-fashioned document, the one from which all presidential powers come.
Unfortunately, these presidential attitudes about the Constitution are par for the course. Beginning with John Adams, and proceeding to Abraham Lincoln, Woodrow Wilson and George W. Bush, Congress has enacted and the president has signed laws that criminalized political speech, suspended habeas corpus, compelled support for war, forbade freedom of contract, allowed the government to spy on Americans without a search warrant, and used taxpayer dollars to shore up failing private banks.
All of this legislation -- merely tips of an unconstitutional Big Government iceberg -- is so obviously in conflict with the plain words of the Constitution that one wonders how Congress gets away with it.
In virtually every generation and during virtually every presidency (Jefferson, Jackson and Cleveland are exceptions that come to mind) the popular branches of government have expanded their power. The air you breathe, the water you drink, the size of your toilet tank, the water pressure in your shower, the words you can speak under oath and in private, how your physician treats your illness, what your children study in grade school, how fast you can drive your car, and what you can drink before you drive it are all regulated by federal law. Congress has enacted over 4,000 federal crimes and written or authorized over one million pages of laws and regulations. Worse, we are expected by law to understand all of it.
The truth is that the Constitution grants Congress 17 specific (or "delegated") powers. And it commands in the Ninth and 10th Amendments that the powers not articulated and thus not delegated by the Constitution to Congress be reserved to the states and the people.
What's more, Congress can only use its delegated powers to legislate for the general welfare, meaning it cannot spend tax dollars on individuals or selected entities, but only for all of us. That is, it must spend in such a manner -- a post office, a military installation, a courthouse, for example -- that directly enhances everyone's welfare within the 17 delegated areas of congressional authority.
And Congress cannot deny the equal protection of the laws. Thus, it must treat similarly situated persons or entities in a similar manner. It cannot write laws that favor its political friends and burden its political enemies.
There is no power in the Constitution for the federal government to enter the marketplace since, when it does, it will favor itself over its competition. The Contracts Clause (the states cannot interfere with private contracts, like mortgages), the Takings Clause (no government can take away property, like real estate or shares of stock, without paying a fair market value for it and putting it to a public use), and the Due Process Clause (no government can take away a right or obligation, like collecting or paying a debt, or enforcing a contract, without a fair trial) together mandate a free market, regulated only to keep it fair and competitive.
It is clear that the Framers wrote a Constitution as a result of which contracts would be enforced, risk would be real, choices would be free and have consequences, and private property would be sacrosanct.
The $700 billion bailout of large banks that Congress recently enacted runs afoul of virtually all these constitutional principles. It directly benefits a few, not everyone. We already know that the favored banks that received cash from taxpayers have used it to retire their own debt. It is private welfare. It violates the principle of equal protection: Why help Bank of America and not Lehman Brothers? It permits federal ownership of assets or debt that puts the government at odds with others in the free market. It permits the government to tilt the playing field to favor its patrons (like J.P. Morgan Chase, in which it has invested taxpayer dollars) and to disfavor those who compete with its patrons (like the perfectly lawful hedge funds which will not have the taxpayers relieve their debts).
Perhaps the only public agreement that Jefferson and Hamilton had about the Constitution was that the federal Treasury would be raided and the free market would expire if the Treasury became a public trough. If it does, the voters will send to Congress those whom they expect will fleece the Treasury for them. That's why the Founders wrote such strict legislating and spending limitations into the Constitution.
Everyone in government takes an oath to uphold the Constitution. But few do so. Do the people we send to the federal government recognize any limits today on Congress's power to legislate? The answer is: Yes, their own perception of whatever they can get away with.
Mr. Napolitano, who served on the bench of the Superior Court of New Jersey between 1987 and 1995, is the senior judicial analyst at the Fox News Channel. His latest book is "A Nation of Sheep" (Nelson, 2007).
U.S. Treasury Seeks Unprecedented Borrowing
Dr. Martenson says it all here. If anyone thinks that this can continue indefinitely – you’re living in a fantasy.
jg – Oct 30, 2008
______________
Treasury seeks "unprecedented borrowing"
Thursday, October 30, 2008, 5:19 pm, by cmartenson
I nominate this for understatement of the year:
Ryan Says Treasury to Need `Unprecedented' Financing
``This year's financing needs will be unprecedented,'' said Anthony Ryan, the Treasury's acting undersecretary for domestic finance, at a Securities Industry and Financial Markets Association conference in New York, where he was a last-minute substitute for Treasury Secretary Henry Paulson.
"Unprecedented" hardly does this justice, we need a more superlative word. "Ginormous" comes to mind.
Perhaps the Germans have a single word that means "future destroying" we could use.
Mr Ryan continues:
Ryan said the Bush administration's July projection of a $482 billion deficit doesn't include new programs launched to attack the credit crisis. The bank rescue program, a separate mortgage-backed securities program, the Fannie-Freddie takeover and a student loan program all need funding, Ryan said. Also, the Treasury is borrowing money on behalf of the Federal Reserve and the Federal Deposit Insurance Corp., he said.
First, how come we don't have a more recent budget projection than from last July? A lot has happened since and I think the Treasury markets would enjoy a bit of guidance on how much paper they will be asked to absorb. Also, I deplore the use of budget projections that exclude items that are, uh, part of the budget.
And here's one estimate of the range of total borrowing:
``The budget deficit for fiscal year 2009 might reach $1 trillion if Congress passes another stimulus package this winter,'' said Lou Crandall, chief economist of Wrightson ICAP, in a research note. ``And that's just the beginning of the bad news -- financing needs arising from off-budget items might be nearly as large as the on-budget deficit.''
Crandall estimates 2009's total borrowing needs at $1.95 trillion. He says Treasury could raise this money with an ``aggressive but sustainable'' increase in regular borrowing, accompanied by one-time auctions as needed.
The difference, I suppose, between the $1 trillion and the $1.95 trillion number is the difference between the fiscal year (Sept 30 - Sept 30) and the calendar year. So I guess Mr Crandall expects nearly a trillion of additional borrowing in the final 3 months of 2009.
For the record, because I factor in a loss of tax revenues and additional stimulus packages, I place next year's fiscal year borrowing at between $2 trillion and $2.5 trillion.
Also, I am cheating a little by knowing that this year's deficit was nearly $1.3 trillion (the first $1 trillion plus deficit on record) even though only $455 billion of that was publicly admitted to by the Bush administration.
I have no good explanation for why the registered deficit was 179% larger than the admitted deficit. Normally the difference is in the vicinity of the excess Social Security funds that were siphoned off, or about $180 billion.
This difference is a whopping $815 billion.
My suspicion is that some of this can be found over on the Federal Reserve Balance sheet but I cannot prove that yet.
Bottom line: The US Treasury department is about to shatter every borrowing record in all of history. Why is China continuing to hold all those US dollars?
jg – Oct 30, 2008
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Treasury seeks "unprecedented borrowing"
Thursday, October 30, 2008, 5:19 pm, by cmartenson
I nominate this for understatement of the year:
Ryan Says Treasury to Need `Unprecedented' Financing
``This year's financing needs will be unprecedented,'' said Anthony Ryan, the Treasury's acting undersecretary for domestic finance, at a Securities Industry and Financial Markets Association conference in New York, where he was a last-minute substitute for Treasury Secretary Henry Paulson.
"Unprecedented" hardly does this justice, we need a more superlative word. "Ginormous" comes to mind.
Perhaps the Germans have a single word that means "future destroying" we could use.
Mr Ryan continues:
Ryan said the Bush administration's July projection of a $482 billion deficit doesn't include new programs launched to attack the credit crisis. The bank rescue program, a separate mortgage-backed securities program, the Fannie-Freddie takeover and a student loan program all need funding, Ryan said. Also, the Treasury is borrowing money on behalf of the Federal Reserve and the Federal Deposit Insurance Corp., he said.
First, how come we don't have a more recent budget projection than from last July? A lot has happened since and I think the Treasury markets would enjoy a bit of guidance on how much paper they will be asked to absorb. Also, I deplore the use of budget projections that exclude items that are, uh, part of the budget.
And here's one estimate of the range of total borrowing:
``The budget deficit for fiscal year 2009 might reach $1 trillion if Congress passes another stimulus package this winter,'' said Lou Crandall, chief economist of Wrightson ICAP, in a research note. ``And that's just the beginning of the bad news -- financing needs arising from off-budget items might be nearly as large as the on-budget deficit.''
Crandall estimates 2009's total borrowing needs at $1.95 trillion. He says Treasury could raise this money with an ``aggressive but sustainable'' increase in regular borrowing, accompanied by one-time auctions as needed.
The difference, I suppose, between the $1 trillion and the $1.95 trillion number is the difference between the fiscal year (Sept 30 - Sept 30) and the calendar year. So I guess Mr Crandall expects nearly a trillion of additional borrowing in the final 3 months of 2009.
For the record, because I factor in a loss of tax revenues and additional stimulus packages, I place next year's fiscal year borrowing at between $2 trillion and $2.5 trillion.
Also, I am cheating a little by knowing that this year's deficit was nearly $1.3 trillion (the first $1 trillion plus deficit on record) even though only $455 billion of that was publicly admitted to by the Bush administration.
I have no good explanation for why the registered deficit was 179% larger than the admitted deficit. Normally the difference is in the vicinity of the excess Social Security funds that were siphoned off, or about $180 billion.
This difference is a whopping $815 billion.
My suspicion is that some of this can be found over on the Federal Reserve Balance sheet but I cannot prove that yet.
Bottom line: The US Treasury department is about to shatter every borrowing record in all of history. Why is China continuing to hold all those US dollars?
Rescue Cash Lures Thousands of Banks
This quote from the article below says it all:
"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors,"
Now that the government has gotten into the banking business – free markets are being turned upside down. No one wants to be left out – so the tentacles of government continue to spread throughout our banking system.
Everyone is running in fear – and they can’t see the danger.
jg
___________________________________
NOVEMBER 3, 2008
Rescue Cash Lures Thousands of Banks
By ELIZABETH WILLIAMSON
Wall St. Journal
WASHINGTON -- Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks, out of concern that failing to do so could make them losers in a banking sector reshaped by the Treasury's $700 billion rescue plan.
Depending upon conditions still being crafted by Treasury, thousands more private banks could apply for government capital as well, a Treasury spokeswoman said Sunday.
Only days ago, many healthy banks were saying they didn't need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP.
Henry Paulson, secretary of the Treasury Department, which has been making efforts in the past week to persuade banks to apply for capital infusions from the government as part of the financial-rescue package.
Now institutions across the U.S. worry that if they don't try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.
"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors," said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week.
In the past week, Treasury said, hundreds of publicly traded institutions have applied for the program, or signaled their intent to do so by the Nov. 14 deadline. Responding to lobbying by banking trade groups and their members, Treasury last week extended that deadline for private banks to give them a chance to apply as well.
Under the program, Treasury takes an equity stake in an institution in exchange for an investment of as much as 3% of risk-weighted assets, to a maximum of $25 billion.
Treasury spokeswoman Jennifer Zuccarelli said architects of the Treasury program anticipated the huge interest, and that the $125 billion remaining for the program after the first nine big banks committed to the funds in October will be enough.
But with new types of institutions -- last week, Treasury said insurers would be eligible -- being added almost weekly, some banks and their advisers say they aren't so sure. They are scrambling to commit to the program, worried they will be left out in the cold when the deadline passes.
"It seemed like the consensus in the industry was...go out and get this," said William Marsh, president and chief executive of Farmers National Bank of Emlenton, in Emlenton, Pa. Mr. Marsh said his bank is healthy and viable without government money, but he leans toward taking the money anyway.
Helping banks to understand and apply for the Capital Purchase Program has become a cottage industry in Washington, where firms with lobbyists and lawyers under the same roof have been adding banking clients by the dozens.
In a seafood restaurant in Washington's Georgetown neighborhood Friday, Norman Antin, a partner in Patton Boggs's banking and regulatory group, read a note on his BlackBerry. House Financial Services Chairman Barney Frank, it said, is joining other Democratic leaders in demanding government money be used for lending first, not acquisitions. Banks and their lobbyists, like those at Patton Boggs, oppose such restrictions. They are in constant contact with bank regulators and lawmakers on Capitol Hill, and send dispatches on developments in the ever-changing program to clients in real time.
Patton Boggs partner Kevin Houlihan said the firm's banking and regulatory group now spends half its time on TARP, though the firm declines to break out the revenue created by the sector. Last week, after Treasury re-emphasized that only healthy banks would qualify for the program, five bankers contacted him in a day. He encouraged them all to apply.
"It's cheap capital, cheap insurance and a bonus for the institutions that are participating," he said.
Lawyers at Skadden, Arps, Slate, Meagher & Flom, whose Washington office is located 50 yards from the Treasury, are marrying banks with private investors to improve their financial picture -- and their chances of being approved for TARP.
Some banks are still reluctant to participate in the government program. Last week, Cullen/Frost Bankers Inc. one of Texas' largest banking institutions, issued a news release explaining why it won't apply for government funds. "Cullen/Frost is well capitalized now and for the foreseeable future, with sufficient capital to grow our business and take advantage of acquisition opportunities," Cullen/Frost Chairman and CEO Dick Evans said in the statement.
Such banks are now in the minority, said Hal Reichwald, co-chair of the financial-services group at Manatt, Phelps & Phillips LLP in Los Angeles. About 100 Manatt clients, old and new, are considering TARP capital, and more are in the pipeline.
—Daniel Fitzpatrick contributed to this article.
Write to Elizabeth Williamson at elizabeth.williamson@wsj.com
"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors,"
Now that the government has gotten into the banking business – free markets are being turned upside down. No one wants to be left out – so the tentacles of government continue to spread throughout our banking system.
Everyone is running in fear – and they can’t see the danger.
jg
___________________________________
NOVEMBER 3, 2008
Rescue Cash Lures Thousands of Banks
By ELIZABETH WILLIAMSON
Wall St. Journal
WASHINGTON -- Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks, out of concern that failing to do so could make them losers in a banking sector reshaped by the Treasury's $700 billion rescue plan.
Depending upon conditions still being crafted by Treasury, thousands more private banks could apply for government capital as well, a Treasury spokeswoman said Sunday.
Only days ago, many healthy banks were saying they didn't need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP.
Henry Paulson, secretary of the Treasury Department, which has been making efforts in the past week to persuade banks to apply for capital infusions from the government as part of the financial-rescue package.
Now institutions across the U.S. worry that if they don't try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.
"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors," said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week.
In the past week, Treasury said, hundreds of publicly traded institutions have applied for the program, or signaled their intent to do so by the Nov. 14 deadline. Responding to lobbying by banking trade groups and their members, Treasury last week extended that deadline for private banks to give them a chance to apply as well.
Under the program, Treasury takes an equity stake in an institution in exchange for an investment of as much as 3% of risk-weighted assets, to a maximum of $25 billion.
Treasury spokeswoman Jennifer Zuccarelli said architects of the Treasury program anticipated the huge interest, and that the $125 billion remaining for the program after the first nine big banks committed to the funds in October will be enough.
But with new types of institutions -- last week, Treasury said insurers would be eligible -- being added almost weekly, some banks and their advisers say they aren't so sure. They are scrambling to commit to the program, worried they will be left out in the cold when the deadline passes.
"It seemed like the consensus in the industry was...go out and get this," said William Marsh, president and chief executive of Farmers National Bank of Emlenton, in Emlenton, Pa. Mr. Marsh said his bank is healthy and viable without government money, but he leans toward taking the money anyway.
Helping banks to understand and apply for the Capital Purchase Program has become a cottage industry in Washington, where firms with lobbyists and lawyers under the same roof have been adding banking clients by the dozens.
In a seafood restaurant in Washington's Georgetown neighborhood Friday, Norman Antin, a partner in Patton Boggs's banking and regulatory group, read a note on his BlackBerry. House Financial Services Chairman Barney Frank, it said, is joining other Democratic leaders in demanding government money be used for lending first, not acquisitions. Banks and their lobbyists, like those at Patton Boggs, oppose such restrictions. They are in constant contact with bank regulators and lawmakers on Capitol Hill, and send dispatches on developments in the ever-changing program to clients in real time.
Patton Boggs partner Kevin Houlihan said the firm's banking and regulatory group now spends half its time on TARP, though the firm declines to break out the revenue created by the sector. Last week, after Treasury re-emphasized that only healthy banks would qualify for the program, five bankers contacted him in a day. He encouraged them all to apply.
"It's cheap capital, cheap insurance and a bonus for the institutions that are participating," he said.
Lawyers at Skadden, Arps, Slate, Meagher & Flom, whose Washington office is located 50 yards from the Treasury, are marrying banks with private investors to improve their financial picture -- and their chances of being approved for TARP.
Some banks are still reluctant to participate in the government program. Last week, Cullen/Frost Bankers Inc. one of Texas' largest banking institutions, issued a news release explaining why it won't apply for government funds. "Cullen/Frost is well capitalized now and for the foreseeable future, with sufficient capital to grow our business and take advantage of acquisition opportunities," Cullen/Frost Chairman and CEO Dick Evans said in the statement.
Such banks are now in the minority, said Hal Reichwald, co-chair of the financial-services group at Manatt, Phelps & Phillips LLP in Los Angeles. About 100 Manatt clients, old and new, are considering TARP capital, and more are in the pipeline.
—Daniel Fitzpatrick contributed to this article.
Write to Elizabeth Williamson at elizabeth.williamson@wsj.com
Economic Crisis Continues
A few highlights from articles in today’s Wall St. Journal. People are placing their hope with Central Banks (rate cuts, increased liquidity, etc) and governments – which I’ve said before - is not a wise move. The question becomes – how long before stock markets figure out what’s happening with the rest of the economy? You know it’s serious when experienced business executives issue quotes like this:
"the worst month in the post-World War II era"
"This is clearly a severe, severe recession."
"Never in all of the years I've been in business have I seen a worse outlook for the economy"
“never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."
What about the bailout? Not helping – but it is adding significant debt to the U.S.:
“The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch.”
jg – Nov 3, 2008
DETROIT--U.S. auto sales in October plunged an estimated 31% to about 850,000 vehicles, as the financial crisis and tightening credit kept buyers away from showrooms. It was the first time since February 1993 that auto makers sold fewer than 900,000 cars and light trucks in a month. When adjusted for increases in the U.S. population, October was "the worst month in the post-World War II era," Michael DiGiovanni, the top sales analyst at General Motors Corp., said in an conference call. "This is clearly a severe, severe recession."
WASHINGTON -- Amid uncertainty about the economic outlook, U.S. banks continued to tighten their standards on loans to households and businesses in the third quarter, according to a Federal Reserve survey of bank executives."Large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months," said the survey, released Monday. Additionally, banks said the uncertain economic outlook and their reduced tolerance for risk also prompted them to reduce credit limits on existing credit card accounts to both prime and nonprime borrowers.
Manufacturing activity in the U.S. slowed sharply in October, falling to the lowest level since 1982 and signaling that a recession is at hand. On the eve of Election Day, the Institute for Supply Management reported that overall activity sank to 38.9 last month from 43.5 in September. Only two industries—computer and electronic products and apparel—reported growth, while 16 industries, including furniture, plastics and petroleum products, reported contraction. It was the first ISM reading this year to herald a recession.
Circuit City Stores Inc., the second largest consumer electronics chain in the U.S., said it will immediately close and liquidate 155 stores and lay off thousands of employees as it struggles to survive an increasingly dreary holiday shopping season. Citing a deteriorating economy, tightening credit limits by its suppliers, and an updated assessment that found its inventory was worth less than it expected, Circuit City said it would close the stores in 55 U.S. markets Tuesday and immediately begin liquidation sales on Wednesday.
PARIS -- Société Générale SA Monday said net profit in the third quarter fell by 84%, as the French bank increased its provisions and continued to reduce its exposure to risky assets. France's second-largest bank said net profit fell to €183 million ($233.2 million) from €1.12 billion in the same period a year earlier. Third-quarter revenue slid 5% to €5.11 billion from €5.38 billion in the year-earlier period.
Viacom Inc.'s third-quarter net income fell 37% as the media company faced challenges in both its networks and filmed-entertainment segments. "The economic environment and ongoing uncertainty have posed new challenges for the media industry, and Viacom has not been immune to the impact of these forces," said Chief Executive Philippe Dauman.
The souring economy is aggravating the troubles of Whole Foods Market Inc., a onetime Wall Street darling now mired in a nearly three-year slump. Analysts say the upscale grocer probably will have to trim its earnings forecast for the current fiscal year and announce further cuts to capital spending or new-store plans when it reports fiscal fourth-quarter results Wednesday.
WASHINGTON -- The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch. The $550 billion estimate is $408 billion more than what Treasury projected in July 2008. The latest projection for the current quarter would leave the Treasury with an estimated end-of-December cash balance of $300 billion. That figure includes $260 billion for a new program Treasury created in September to help finance new Federal Reserve programs to address liquidity pressures in financial markets. "The increase in borrowing is primarily due to higher outlays related to economic assistance programs, lower receipts, and lower net issuances of state and local government series securities," Treasury said in a notice Monday afternoon.
For months, many mutual-fund investors could take comfort in this: They had endured worse during the tech-stock collapse. The hard lessons learned from that earlier, harrowing ride led many to believe they were better positioned for this bear market. But U.S. stock-market declines during October were so deep and wide that even tame investments were pummeled. Losses from the steep plunge that began just over a year ago now top those from 2000-2002.
Grim. There's no other word for the European Commission's outlook for the euro zone and wider European Union economy in its regular autumn survey. But the outlook may get grimmer yet for those countries with the biggest current account deficits unless the European Central Bank comes up with a series of sharp interest-rate cuts. That would probably see the euro fall even further against the dollar.
The chairman of Barnes & Noble Inc. last week told employees via an internal memo that the nation's largest bookstore retailer is "bracing for a terrible holiday season," and that he expects "the trend to continue well into 2009, and perhaps beyond." "Never in all of the years I've been in business have I seen a worse outlook for the economy," wrote Mr. Riggio. "And never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."
Private-equity firm KKR & Co. LP won't complete its initial public offering until 2009, once again delaying its going-public plans amid the growing financial crisis.
BRUSSELS -- The euro-zone economy is now in recession and will remain at a standstill for most of next year, the European Commission said Monday in its autumn forecast. The commission, the European Union's executive arm, said financial markets are still in a "precarious" condition, creating significant risks to its already bleak economic outlook.
"the worst month in the post-World War II era"
"This is clearly a severe, severe recession."
"Never in all of the years I've been in business have I seen a worse outlook for the economy"
“never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."
What about the bailout? Not helping – but it is adding significant debt to the U.S.:
“The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch.”
jg – Nov 3, 2008
DETROIT--U.S. auto sales in October plunged an estimated 31% to about 850,000 vehicles, as the financial crisis and tightening credit kept buyers away from showrooms. It was the first time since February 1993 that auto makers sold fewer than 900,000 cars and light trucks in a month. When adjusted for increases in the U.S. population, October was "the worst month in the post-World War II era," Michael DiGiovanni, the top sales analyst at General Motors Corp., said in an conference call. "This is clearly a severe, severe recession."
WASHINGTON -- Amid uncertainty about the economic outlook, U.S. banks continued to tighten their standards on loans to households and businesses in the third quarter, according to a Federal Reserve survey of bank executives."Large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months," said the survey, released Monday. Additionally, banks said the uncertain economic outlook and their reduced tolerance for risk also prompted them to reduce credit limits on existing credit card accounts to both prime and nonprime borrowers.
Manufacturing activity in the U.S. slowed sharply in October, falling to the lowest level since 1982 and signaling that a recession is at hand. On the eve of Election Day, the Institute for Supply Management reported that overall activity sank to 38.9 last month from 43.5 in September. Only two industries—computer and electronic products and apparel—reported growth, while 16 industries, including furniture, plastics and petroleum products, reported contraction. It was the first ISM reading this year to herald a recession.
Circuit City Stores Inc., the second largest consumer electronics chain in the U.S., said it will immediately close and liquidate 155 stores and lay off thousands of employees as it struggles to survive an increasingly dreary holiday shopping season. Citing a deteriorating economy, tightening credit limits by its suppliers, and an updated assessment that found its inventory was worth less than it expected, Circuit City said it would close the stores in 55 U.S. markets Tuesday and immediately begin liquidation sales on Wednesday.
PARIS -- Société Générale SA Monday said net profit in the third quarter fell by 84%, as the French bank increased its provisions and continued to reduce its exposure to risky assets. France's second-largest bank said net profit fell to €183 million ($233.2 million) from €1.12 billion in the same period a year earlier. Third-quarter revenue slid 5% to €5.11 billion from €5.38 billion in the year-earlier period.
Viacom Inc.'s third-quarter net income fell 37% as the media company faced challenges in both its networks and filmed-entertainment segments. "The economic environment and ongoing uncertainty have posed new challenges for the media industry, and Viacom has not been immune to the impact of these forces," said Chief Executive Philippe Dauman.
The souring economy is aggravating the troubles of Whole Foods Market Inc., a onetime Wall Street darling now mired in a nearly three-year slump. Analysts say the upscale grocer probably will have to trim its earnings forecast for the current fiscal year and announce further cuts to capital spending or new-store plans when it reports fiscal fourth-quarter results Wednesday.
WASHINGTON -- The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch. The $550 billion estimate is $408 billion more than what Treasury projected in July 2008. The latest projection for the current quarter would leave the Treasury with an estimated end-of-December cash balance of $300 billion. That figure includes $260 billion for a new program Treasury created in September to help finance new Federal Reserve programs to address liquidity pressures in financial markets. "The increase in borrowing is primarily due to higher outlays related to economic assistance programs, lower receipts, and lower net issuances of state and local government series securities," Treasury said in a notice Monday afternoon.
For months, many mutual-fund investors could take comfort in this: They had endured worse during the tech-stock collapse. The hard lessons learned from that earlier, harrowing ride led many to believe they were better positioned for this bear market. But U.S. stock-market declines during October were so deep and wide that even tame investments were pummeled. Losses from the steep plunge that began just over a year ago now top those from 2000-2002.
Grim. There's no other word for the European Commission's outlook for the euro zone and wider European Union economy in its regular autumn survey. But the outlook may get grimmer yet for those countries with the biggest current account deficits unless the European Central Bank comes up with a series of sharp interest-rate cuts. That would probably see the euro fall even further against the dollar.
The chairman of Barnes & Noble Inc. last week told employees via an internal memo that the nation's largest bookstore retailer is "bracing for a terrible holiday season," and that he expects "the trend to continue well into 2009, and perhaps beyond." "Never in all of the years I've been in business have I seen a worse outlook for the economy," wrote Mr. Riggio. "And never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."
Private-equity firm KKR & Co. LP won't complete its initial public offering until 2009, once again delaying its going-public plans amid the growing financial crisis.
BRUSSELS -- The euro-zone economy is now in recession and will remain at a standstill for most of next year, the European Commission said Monday in its autumn forecast. The commission, the European Union's executive arm, said financial markets are still in a "precarious" condition, creating significant risks to its already bleak economic outlook.
U.S. Debt Could Tie Obama's Hands
It seems people are finally waking up to reality. There is no money for the campaign promises made by our President-elect. This will become increasingly clear as tax revenues begin to drop dramatically at the same time our deficits sky-rocket. ‘Constrain’ isn’t the word I would use here. At some point – there will be no money for economic stimulus – or anything else. Things are going to ‘change’ – but not in the way most people expect.
"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist.
We should stop comparing our debt to other nation's debt and start asking the right questions - why does every nation have such enormous debt? Why does it seem that everyone - nations, corporations, individuals - has to manage such massive debt loads?
jg - Nov 5, 2008
___________________
NOVEMBER 5, 2008, 4:43 P.M. ET
U.S. Debt Could Tie Obama's Hands
By JON HILSENRATH
Wall St. Journal
The U.S. government is on course for an unprecedented borrowing binge in coming months, a development that could constrain President-elect Barack Obama's economic agenda.
The Treasury Department laid out near-term borrowing plans Wednesday, saying it expects to tap financial markets for $550 billion in the final three months of 2008 and another $368 billion in the first three months of next year through issuing Treasury securities with a wide range of maturities.
Economists project that total government borrowing could pass $1.5 trillion in the fiscal year, which ends next September, in one year pushing up the government's total debt burden by more than 25%, a large and possibly jolting increase.
The sharp rise poses a potential dilemma for Mr. Obama's activist agenda. Few economists believe the Treasury will be constrained in the next year in its ability to manage its rising borrowing needs or in advancing another fiscal stimulus program. But in the long run, rising government debt could make it harder for Mr. Obama to pursue new spending and tax-cut programs aggressively.
"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist. "But if you're talking about health care reform and some of these longer-term programs, there is some constraint there."
A range of factors are behind the mammoth borrowing increase. The recession has slowed individual income and corporate income tax receipts. Outlays are rising for unemployment insurance, food stamps and other programs meant to be an economic stabilizer.
Meantime, the Treasury is embarking on a $700 billion program to buy distressed assets from Wall Street and invest in financial firms and has already increased borrowing in support of Federal Reserve financial rescue efforts.
Furthermore, Congress is likely to pass a new economic stimulus plan in the weeks ahead that could run well over $150 billion.
"We're really expecting private, foreign, domestic investors and foreign government investors to increase their Treasury debt holdings by a huge proportion," said Rudy Penner, a budget expert at the Urban Institute.
In theory, such a sharp increase in new supply of Treasury bonds and notes might jolt investors, pushing up interest rates. That hasn't happened so far, in large part because investors have been reluctant to hold riskier assets.
Yields on 10-year Treasury bonds, at 3.7%, are well below levels reached in mid-2007, when they briefly moved above 5%. Yields on 1-month Treasury bills, at less than .2%, represent almost costless borrowing for the U.S. government, and have served as a green light to policy makers for a new economic stimulus plan.
"A large fiscal stimulus package of $300-$500 billion appears to be required to prevent an even deeper economic slump than the one we are now forecasting," Goldman Sachs economists said in a recent report on the fiscal outlook.
Economists break into two camps on the longer-term threat of mounting budget deficits.
One camp sees the debt as manageable compared to other countries and compared to the past. Even with $1.5 trillion of new borrowing this year, the U.S. government's publicly held debt would amount to about 49% of gross domestic product, according to Morgan Stanley.
That's much lower than Japan's government debt, which exceeds 100% of GDP. It is also below the U.S. peak of more than 100% reached after World War II. As the economy improves and the government's borrowing needs diminish, this camp holds, the deficit picture should improve.
But others warn that the current increase in borrowing is coming at the worst possible time, because the budget picture is on track to darken amid spending on Medicare, Medicaid and Social Security with the aging of the population.
"The problem is that over the next number of years, the long-run budget pressures are going to become more and more apparent," Mr. Penner says. "That is going to make it more and more difficult to reverse the deficits."
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist.
We should stop comparing our debt to other nation's debt and start asking the right questions - why does every nation have such enormous debt? Why does it seem that everyone - nations, corporations, individuals - has to manage such massive debt loads?
jg - Nov 5, 2008
___________________
NOVEMBER 5, 2008, 4:43 P.M. ET
U.S. Debt Could Tie Obama's Hands
By JON HILSENRATH
Wall St. Journal
The U.S. government is on course for an unprecedented borrowing binge in coming months, a development that could constrain President-elect Barack Obama's economic agenda.
The Treasury Department laid out near-term borrowing plans Wednesday, saying it expects to tap financial markets for $550 billion in the final three months of 2008 and another $368 billion in the first three months of next year through issuing Treasury securities with a wide range of maturities.
Economists project that total government borrowing could pass $1.5 trillion in the fiscal year, which ends next September, in one year pushing up the government's total debt burden by more than 25%, a large and possibly jolting increase.
The sharp rise poses a potential dilemma for Mr. Obama's activist agenda. Few economists believe the Treasury will be constrained in the next year in its ability to manage its rising borrowing needs or in advancing another fiscal stimulus program. But in the long run, rising government debt could make it harder for Mr. Obama to pursue new spending and tax-cut programs aggressively.
"I don't think that anything on the stimulus end will be constrained by these deficits," said David Greenlaw, a Morgan Stanley economist. "But if you're talking about health care reform and some of these longer-term programs, there is some constraint there."
A range of factors are behind the mammoth borrowing increase. The recession has slowed individual income and corporate income tax receipts. Outlays are rising for unemployment insurance, food stamps and other programs meant to be an economic stabilizer.
Meantime, the Treasury is embarking on a $700 billion program to buy distressed assets from Wall Street and invest in financial firms and has already increased borrowing in support of Federal Reserve financial rescue efforts.
Furthermore, Congress is likely to pass a new economic stimulus plan in the weeks ahead that could run well over $150 billion.
"We're really expecting private, foreign, domestic investors and foreign government investors to increase their Treasury debt holdings by a huge proportion," said Rudy Penner, a budget expert at the Urban Institute.
In theory, such a sharp increase in new supply of Treasury bonds and notes might jolt investors, pushing up interest rates. That hasn't happened so far, in large part because investors have been reluctant to hold riskier assets.
Yields on 10-year Treasury bonds, at 3.7%, are well below levels reached in mid-2007, when they briefly moved above 5%. Yields on 1-month Treasury bills, at less than .2%, represent almost costless borrowing for the U.S. government, and have served as a green light to policy makers for a new economic stimulus plan.
"A large fiscal stimulus package of $300-$500 billion appears to be required to prevent an even deeper economic slump than the one we are now forecasting," Goldman Sachs economists said in a recent report on the fiscal outlook.
Economists break into two camps on the longer-term threat of mounting budget deficits.
One camp sees the debt as manageable compared to other countries and compared to the past. Even with $1.5 trillion of new borrowing this year, the U.S. government's publicly held debt would amount to about 49% of gross domestic product, according to Morgan Stanley.
That's much lower than Japan's government debt, which exceeds 100% of GDP. It is also below the U.S. peak of more than 100% reached after World War II. As the economy improves and the government's borrowing needs diminish, this camp holds, the deficit picture should improve.
But others warn that the current increase in borrowing is coming at the worst possible time, because the budget picture is on track to darken amid spending on Medicare, Medicaid and Social Security with the aging of the population.
"The problem is that over the next number of years, the long-run budget pressures are going to become more and more apparent," Mr. Penner says. "That is going to make it more and more difficult to reverse the deficits."
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
The Looting Operation Continues
It’s nice to know that the bailout money is being put to good use. You see here how greed overwhelms everything else – even common sense. What are these people going to do when they no longer have wealth? When everything falls apart – it’s going to be very ugly for awhile. The following article was written by Chris Martenson.
jg
___________________________
The looting operation (con't)
Wednesday, November 5, 2008, 9:13 pm, by cmartenson
At the time, some thought that my characterization of the bailout as a "looting operation" was too strong, and told me so.
I am more certain of that language than ever.
By the time you read this, America will have a new President. I hope he’s better with money than the last resident of the White House. Just look at how the Bush gang is spending the $700 billion bailout package for banks — throwing it at financial institutions with few strings attached.
As a result, many Wall Street institutions are using billions and billions of taxpayer dollars to pay for fat cats’ bonuses.
Goldman Sachs, which is getting $10 billion from the bailout plan, is paying out $6.85 billion in bonuses, according to media reports. That’s $210,000 per employee. And that’s despite a 47% drop in its profit and 53% drop in its share price.
· Morgan Stanley, which is also getting $10 billion from our government, is doling out $6.44 billion in bonuses or $138,700 per employee, even though its profits tumbled 41% and its shares are off by 69%.
· And even the failures at Lehman Brothers are collectively getting over $1 billion in bonuses.
Some conservatives have been bemoaning the “nationalization” of America’s big banks. Yet we didn’t nationalize anything — we don’t control those banks. They’re free to spend the bailout money as they please.
And we got hosed.
Bonuses for Lehman employees? More than 65% of the bailout money to GS and MS being spent on bonuses?
I guess I am confused by what the word "bonus" means in the context of business performance.
It's okay if you are, too.
jg
___________________________
The looting operation (con't)
Wednesday, November 5, 2008, 9:13 pm, by cmartenson
At the time, some thought that my characterization of the bailout as a "looting operation" was too strong, and told me so.
I am more certain of that language than ever.
By the time you read this, America will have a new President. I hope he’s better with money than the last resident of the White House. Just look at how the Bush gang is spending the $700 billion bailout package for banks — throwing it at financial institutions with few strings attached.
As a result, many Wall Street institutions are using billions and billions of taxpayer dollars to pay for fat cats’ bonuses.
Goldman Sachs, which is getting $10 billion from the bailout plan, is paying out $6.85 billion in bonuses, according to media reports. That’s $210,000 per employee. And that’s despite a 47% drop in its profit and 53% drop in its share price.
· Morgan Stanley, which is also getting $10 billion from our government, is doling out $6.44 billion in bonuses or $138,700 per employee, even though its profits tumbled 41% and its shares are off by 69%.
· And even the failures at Lehman Brothers are collectively getting over $1 billion in bonuses.
Some conservatives have been bemoaning the “nationalization” of America’s big banks. Yet we didn’t nationalize anything — we don’t control those banks. They’re free to spend the bailout money as they please.
And we got hosed.
Bonuses for Lehman employees? More than 65% of the bailout money to GS and MS being spent on bonuses?
I guess I am confused by what the word "bonus" means in the context of business performance.
It's okay if you are, too.
China Announces Stimulus - and Stock Markets Rise
China announced a half trillion dollar stimulus plan over the weekend (November 9th) – and naturally – stock markets rally in China and Europe - and the DJIA is expected to rise as well. Countries around the world continue their attempts to revive the world’s economy using the same methods that are destined to fail. Stock markets rally on this news because they see more cheap money flowing into the system and they ignore the underlying economic data – even though all of the economic data is pointing to a deep, global recession. The following headlines (all published over the past couple of days) are telling us what’s happening in the real economy – and sooner rather than later – stock investors are going to realize this.
“General Motors Corp. and Ford Motor Co. posted steep losses in their core operations and together burned through a staggering $14.6 billion in cash in the third quarter, raising the possibility that Washington may have to step in to finance a historic downsizing of the U.S. auto industry.”
“Regulators seized a $5.1 billion Houston bank led by mortgage-bond-pioneer Lewis Ranieri and a small bank in Los Angeles Friday, raising the number of bank failures this year to 19 and showing how even the most experienced financial executives are struggling to survive the financial crisis. Prosperity Bank, of El Campo, Texas, agreed to assume the $3.7 billion in deposits held by Franklin Bank, of Houston, and purchase $850 million in assets, leaving the Federal Deposit Insurance Corp. to dispose of the remaining $4.25 billion. (Nov 10, 2008)”
“Troubled electronics retailer Circuit City Stores Inc. filed for Chapter 11 bankruptcy Monday in an effort to stay ahead of lenders owed $898 million.”
“Nortel Networks swung to a $3.41 billion third-quarter loss and said it plans to eliminate 1,300 jobs as the economic slowdown hurt its financial performance. The Toronto-based company also plans to introduce salary and hiring freezes, cut or consolidation of executive and management positions and suspend certain preferred-share dividends.”
“Dish Network Corp. posted a 54% decrease in third-quarter net income on an investment-related charge and a second-straight quarterly reduction in subscribership while sister company EchoStar Corp.'s net loss widened on a similar charge.”
“Silicon Valley is drowning in "underwater" options. But with the stock market in turmoil, investors might be uneasy bailing out high-tech employees. Employees at scores of companies, including Yahoo Inc. and Google Inc., are holding stock options, the right to buy shares at a preset price, that have been rendered virtually worthless because those companies' shares have fallen below the exercise prices.”
“The global financial crisis claimed a high-profile casualty in the former Soviet Union over the weekend when Latvia's biggest home-grown bank was effectively nationalized by the Baltic nation's government.”
“Mail and logistics company Deutsche Post AG said it will cut 9,500 jobs and close all of its DHL express service centers in the U.S. amid heavy losses in the market there. In a statement released Monday, the German company said that new round of cuts are on top of 4,500 job cuts it already announced and blamed heavy losses at the unit, which competes with rivals UPS Inc. and FedEx Corp.”
“Fannie Mae's third-quarter net loss widened on a $21.4 billion write-down of deferred tax assets it would have used to offset taxes on future profits, showing the red ink at the government-sponsored provider of funds for home mortgages isn't expected to end soon.”
“U.K. factory gate prices declined at a record pace in October, as oil prices continued to fall sharply on concerns that the world economy is sliding into recession, data from the Office for National Statistics showed Monday.”
DONGGUAN, China – “Workers have flocked to southern China for plentiful manufacturing jobs in industries that offer better pay than farm work. Now, they are finding themselves in an unusual jam: lining up for increasingly scarce employment.”
Chris Martenson has written a blog post below showing the perverse logic of the world’s stock markets. As always, he’s done an excellent job of presenting the truth of what’s really happening.
jg
________________
Jobs report shows 240,000 losses and more Fuzzy Numbers
Friday, November 7, 2008, 11:44 am, by cmartenson
The Dow Jones is up roughly 225 points on the news that 240,000 people lost their jobs in October. This perverse sort of reaction defines how Wall Street works. Wall Street cheers this sort of news, because it implies that another rate cut is on the way.
So the logic boils down to this: The worse the news, the greater the chance that the Fed will shower us with even more cheap money.
In a more perfect monetary system, good news would be rewarded and bad news would be punished but that is just not how Wall Street works. Quite the opposite.
Of course, nobody ever seems to question this logic, or whether it even makes any sort of sense at all. To my way of thinking, the problems we are now experiencing stem from having entirely too much cheap money flooding the system for too long, and so I greet every new rate cut and Fed liquidity program with a grimace, knowing that they will merely prolong the agony.
But Wall Street cheers the prospect of cheap money and new credit, because it is those sources of funds that perpetuate their amply-rewarded jobs.
Meanwhile today is "job report Friday," and the news was predictably bad, but not as bad as 'expected'.
U.S. Unemployment Rate Climbs to 14-Year High of 6.5%
Nov. 7 (Bloomberg) -- The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.
The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.
“We’re heading for a deep recession -- banish the word mild from your vocabulary -- it’s big, it’s bad and it’s broad-based,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
This data fits in with the general theme of this recession being unlike any in recent memory. In my estimation, the job losses are just getting started, and we can fully count on another 12-18 months of increasing losses.
I reserve the possibility that the total number of losses could be far worse than any prior recessions, for two reasons. First, this is the largest credit bubble ever to burst, so this means the bottom will be lower than any prior events. The second reason is that the US is now an 80% service-based economy. Those jobs are easy come, easy go, so the number of them that "go" could be a real shocker.
And, of course, these numbers would have been a lot worse if the venerable Birth-Death model at the BLS had not added (yes, that's right, added) an additional 71,000 jobs back onto the sampled losses.
This is beyond preposterous. Certainly by now, if this were an honest mistake of honest statistical modelers, they would have admitted publicly that their model is clearly broken and in need of repair.
I am certain that we've been in recession since February, and yet, during that time the BLS job modelers have added 1,180,000 jobs to the official landscape.
The Birth-Death model, despite negative GDP, negative spending, negative industrial output, and negative hiring activity, has not recorded a single losing month from February onwards. How is that even remotely possible? Perhaps they should rename it the Birth-Birth model?
As a sanity check, note that the model has added construction jobs in each and every month, without exception, despite the largest fall-off in residential construction ever on record.
One wonders what is in this model? If I were building such a model, I would use inputs such as "spending activity" and "units built/shipped" as my drivers.
I strongly suspect that their "model" is little more than this formula: (prior amount of jobs) x (some factor).
At any rate, after subtracting out these mythical 71,000 jobs for October, the reported number would have been -311,000 jobs.
Worst of all, I suspect that all 1,180,000 jobs added by the Birth-Death model are in error and will have to be removed from the official numbers in the future.
This constant fibbing to ourselves about the true state of affairs is harmful because it prevents accurate diagnosis and treatment of what ails us.
It's time to stop, and I call upon somebody at the BLS to please come forward with the truth.
“General Motors Corp. and Ford Motor Co. posted steep losses in their core operations and together burned through a staggering $14.6 billion in cash in the third quarter, raising the possibility that Washington may have to step in to finance a historic downsizing of the U.S. auto industry.”
“Regulators seized a $5.1 billion Houston bank led by mortgage-bond-pioneer Lewis Ranieri and a small bank in Los Angeles Friday, raising the number of bank failures this year to 19 and showing how even the most experienced financial executives are struggling to survive the financial crisis. Prosperity Bank, of El Campo, Texas, agreed to assume the $3.7 billion in deposits held by Franklin Bank, of Houston, and purchase $850 million in assets, leaving the Federal Deposit Insurance Corp. to dispose of the remaining $4.25 billion. (Nov 10, 2008)”
“Troubled electronics retailer Circuit City Stores Inc. filed for Chapter 11 bankruptcy Monday in an effort to stay ahead of lenders owed $898 million.”
“Nortel Networks swung to a $3.41 billion third-quarter loss and said it plans to eliminate 1,300 jobs as the economic slowdown hurt its financial performance. The Toronto-based company also plans to introduce salary and hiring freezes, cut or consolidation of executive and management positions and suspend certain preferred-share dividends.”
“Dish Network Corp. posted a 54% decrease in third-quarter net income on an investment-related charge and a second-straight quarterly reduction in subscribership while sister company EchoStar Corp.'s net loss widened on a similar charge.”
“Silicon Valley is drowning in "underwater" options. But with the stock market in turmoil, investors might be uneasy bailing out high-tech employees. Employees at scores of companies, including Yahoo Inc. and Google Inc., are holding stock options, the right to buy shares at a preset price, that have been rendered virtually worthless because those companies' shares have fallen below the exercise prices.”
“The global financial crisis claimed a high-profile casualty in the former Soviet Union over the weekend when Latvia's biggest home-grown bank was effectively nationalized by the Baltic nation's government.”
“Mail and logistics company Deutsche Post AG said it will cut 9,500 jobs and close all of its DHL express service centers in the U.S. amid heavy losses in the market there. In a statement released Monday, the German company said that new round of cuts are on top of 4,500 job cuts it already announced and blamed heavy losses at the unit, which competes with rivals UPS Inc. and FedEx Corp.”
“Fannie Mae's third-quarter net loss widened on a $21.4 billion write-down of deferred tax assets it would have used to offset taxes on future profits, showing the red ink at the government-sponsored provider of funds for home mortgages isn't expected to end soon.”
“U.K. factory gate prices declined at a record pace in October, as oil prices continued to fall sharply on concerns that the world economy is sliding into recession, data from the Office for National Statistics showed Monday.”
DONGGUAN, China – “Workers have flocked to southern China for plentiful manufacturing jobs in industries that offer better pay than farm work. Now, they are finding themselves in an unusual jam: lining up for increasingly scarce employment.”
Chris Martenson has written a blog post below showing the perverse logic of the world’s stock markets. As always, he’s done an excellent job of presenting the truth of what’s really happening.
jg
________________
Jobs report shows 240,000 losses and more Fuzzy Numbers
Friday, November 7, 2008, 11:44 am, by cmartenson
The Dow Jones is up roughly 225 points on the news that 240,000 people lost their jobs in October. This perverse sort of reaction defines how Wall Street works. Wall Street cheers this sort of news, because it implies that another rate cut is on the way.
So the logic boils down to this: The worse the news, the greater the chance that the Fed will shower us with even more cheap money.
In a more perfect monetary system, good news would be rewarded and bad news would be punished but that is just not how Wall Street works. Quite the opposite.
Of course, nobody ever seems to question this logic, or whether it even makes any sort of sense at all. To my way of thinking, the problems we are now experiencing stem from having entirely too much cheap money flooding the system for too long, and so I greet every new rate cut and Fed liquidity program with a grimace, knowing that they will merely prolong the agony.
But Wall Street cheers the prospect of cheap money and new credit, because it is those sources of funds that perpetuate their amply-rewarded jobs.
Meanwhile today is "job report Friday," and the news was predictably bad, but not as bad as 'expected'.
U.S. Unemployment Rate Climbs to 14-Year High of 6.5%
Nov. 7 (Bloomberg) -- The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.
The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September, the biggest two-month slide since 2001.
“We’re heading for a deep recession -- banish the word mild from your vocabulary -- it’s big, it’s bad and it’s broad-based,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
This data fits in with the general theme of this recession being unlike any in recent memory. In my estimation, the job losses are just getting started, and we can fully count on another 12-18 months of increasing losses.
I reserve the possibility that the total number of losses could be far worse than any prior recessions, for two reasons. First, this is the largest credit bubble ever to burst, so this means the bottom will be lower than any prior events. The second reason is that the US is now an 80% service-based economy. Those jobs are easy come, easy go, so the number of them that "go" could be a real shocker.
And, of course, these numbers would have been a lot worse if the venerable Birth-Death model at the BLS had not added (yes, that's right, added) an additional 71,000 jobs back onto the sampled losses.
This is beyond preposterous. Certainly by now, if this were an honest mistake of honest statistical modelers, they would have admitted publicly that their model is clearly broken and in need of repair.
I am certain that we've been in recession since February, and yet, during that time the BLS job modelers have added 1,180,000 jobs to the official landscape.
The Birth-Death model, despite negative GDP, negative spending, negative industrial output, and negative hiring activity, has not recorded a single losing month from February onwards. How is that even remotely possible? Perhaps they should rename it the Birth-Birth model?
As a sanity check, note that the model has added construction jobs in each and every month, without exception, despite the largest fall-off in residential construction ever on record.
One wonders what is in this model? If I were building such a model, I would use inputs such as "spending activity" and "units built/shipped" as my drivers.
I strongly suspect that their "model" is little more than this formula: (prior amount of jobs) x (some factor).
At any rate, after subtracting out these mythical 71,000 jobs for October, the reported number would have been -311,000 jobs.
Worst of all, I suspect that all 1,180,000 jobs added by the Birth-Death model are in error and will have to be removed from the official numbers in the future.
This constant fibbing to ourselves about the true state of affairs is harmful because it prevents accurate diagnosis and treatment of what ails us.
It's time to stop, and I call upon somebody at the BLS to please come forward with the truth.
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