The Bailout

[HenryTo]

I appreciate the past discussions on the morals of any bailouts for both mortgage lenders and homeowners. Since this is an investment forum, I would like to restrict this discussion to the potential investment implications of any bailouts, though, if y'all don't mind.

http://money.cnn.com/2008/03/26/news/economy/bailout/index.htm?postversion=2008032614

[rffrydr]

World Trade: On shipping alone, figure double the cash deposit....in dollars. First Oil, now Credit, the world is becoming much less flat. Fed backing or no.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

A truly unprecedented move: The Fed effectively backstops Brazil, Mexico, South Korea, and Singapore by creating USD swap lines with their respective central banks. Three immediate implications: 1) This proves that the USD is still the sole reserve currency of the world; 2) For the first time ever, the Fed is providing lifelines to "non-white" EM countries, signaling that as long as one has been fiscally conservative, it will get a helping hand from the Fed; 3) Both the Fed and the IMF have learned significant lessons from the IMF "bailouts" during the Asian Crisis. Today, EM countries such as Brazil have become very important players of the global economy - i.e. there will be very significant ramifications should these countries go down.

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

[HenryTo]

Life insurers close to getting equity injections from the $250 billion recapitalization scheme:

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aomIX8J39aos

[HenryTo]

US banks that have tapped the $250 billion recapitalization scheme so far:

http://www.reuters.com/article/newsOne/idINN2837471720081028

[HenryTo]

Treasury unveils its $250 billion to recapitalize the US financial system:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0DqEDw4VVzE&refer=home

[pinocchio]

[gregf]

This takes off the table one of the biggest problems impeding the market(s) right now.

Combined with the huge rally in the afternoon off the test of the 8K level (institutions are the only buyers who can create that sort of move), plus everything else that's a positive for stocks here lately - and I think we have some huge up days ahead of us next week.

Margin call related selling should be a yawn monday morning,....

We will see, but, I'm very encouraged at this point that the tide has turned,...

[HenryTo]

Finally - a "bailout" that doesn't involve demonizing new and existing equity holders. This will not only 'work," but will attract an immense amount of cash that have been sitting on the sidelines - scared not because of any upcoming recession, but scared because of the Treasury's populist leanings to confiscate bank shareholder equity by fiat. Sad to see that it took a decline of 2,000 Dow points and an imminent recession for the folks on Main Street to realize this. As they say, be careful what you wish for.
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US to buy stake in banks, first since Depression
Friday October 10, 8:51 pm ET
By Jeannine Aversa, AP Economics Writer
US to buy ownership stake in a broad array of banks for the first time since Depression

WASHINGTON (AP) -- The government will buy an ownership stake in a broad array of American banks for the first time since the Great Depression, Treasury Secretary Henry Paulson said late Friday, announcing the historic step after stock markets jolted still lower around the world despite all efforts to slow the selling stampede.

Separately, the U.S. and the globe's other industrial powers pledged to take "decisive action and use all available tools" to prevent a worldwide economic catastrophe.

"This is a period like none of us has ever seen before," declared Paulson at a rare Friday night news conference. He said the government program to purchase stock in private U.S. financial firms will be open to a broad array of institutions, including banks, in an effort to help them raise desperately needed money.

The administration received the authority to take such direct action in the $700 billion economic rescue bill that Congress passed and President Bush signed last week.

Earlier Friday, stock prices hurtled downward in the United States, Europe and Asia, even as President Bush tried to reassure Americans and the world that the U.S. and other governments were aggressively addressing what has become a near panic.

A sign of how bad things have gotten: A drop of 128 points in the Dow Jones industrials was greeted with sighs of relief after the index had plummeted much further on previous days. The week ended as the Dow's worst ever, with the index down an incredible 40.3 percent since its record close almost exactly one year earlier, on Oct. 9. 2007.

Investors suffered a paper loss of $2.4 trillion for the week, as measured by the Dow Jones Wilshire 5000 index, and for the past year the losses have totaled $8.4 trillion.

It was even worse overseas on Friday. Britain's FTSE index ended below the 4,000 level for the first time in five years; Germany's DAX fell 7 percent and France's CAC-40 finished down 7.7 percent. Japan's benchmark Nikkei 225 index fell 9.6 percent, also hitting a five-year low. For the week, the Nikkei lost nearly a quarter of its value. Russia's market never even opened.

Paulson announced the administration's new effort to prop up banks at the conclusion of discussions among finance officials of the Group of Seven major industrialized countries. That group endorsed the outlines of a sweeping program to combat the worst global credit crisis in decades.

Earlier this week, Britain had moved to pour cash into its troubled banks in exchange for stakes in them -- a partial nationalization.

Paulson said the U.S. program would be designed to complement banks' own efforts to raise fresh capital from private sources. The government's stock purchases will be of nonvoting shares so it will not have power to run the companies.

The purchase of stakes in companies would be in addition to the main thrust of the $700 billion rescue effort, which is to buy bad mortgages and other distressed assets from financial institutions. The aim is to unthaw frozen credit, get banks to resume more normal lending operations and stave off severe problems for businesses and everyday Americans alike.

It would mark the first time the government has taken equity ownership in banks in this manner since a similar program was employed during the Depression.

In 1989, the government created the Resolution Trust Corp. to deal with the aftermath of the savings and loan crisis. It disposed of the assets of failed savings and loans.

Paulson and Federal Reserve Chairman Ben Bernanke met with their counterparts from the world's six other richest countries late in the day as the rout of financial markets sped ahead despite earlier dramatic rescue efforts in the U.S. and abroad.

In a statement at the end of that meeting, the G7 officials vowed to protect major banks and to prevent their failure. They also committed to working to get credit flowing more freely again, to support the efforts of banks to raise money from both public and private sources, to bolster deposit insurance and to revive the battered mortgage financing market.

They did not provide specifics beyond that five-point framework.

At the White House earlier in the day, Bush said, "We're in this together and we'll come through this together." He added, "Anxiety can feed anxiety, and that can make it hard to see all that's being done to solve the problem."

He made it clear the United States must work with other countries to battle the worst financial crisis that has jolted the world economy in more than a half-century.

"We've seen that problems in the financial system are not isolated to the United States," he said. "So we're working closely with partners around the world to ensure that our actions are coordinated and effective."

The Dow dropped a little over 100 points while he was speaking.

Fear has tightened its grip on investors worldwide even as the United States and other countries have taken a series of radical actions including an unprecedented, coordinated interest rate cuts by the Federal Reserve and other major central banks.

Besides the United States, the other members of the G7 meeting in Washington are Japan, Germany, Britain, France, Italy and Canada. Finance officials also planned to meet with Bush Saturday at the White House.

"We are in a development where the downward spiral is picking up speed," said Germany's Finance Minister Peer Steinbrueck, who wanted to see an orchestrated response among the G7.

So did French Finance Minister Christine Lagarde, who said a "coordinated, synchronized and rightly timed approach" was needed.

An even larger group of nations -- called the G20 -- will meet with Paulson on Saturday evening. How the world's finance officials and central bank presidents can better contain the spreading financial crisis also will dominate discussions at the weekend meetings of the 185-nation International Monetary Fund and the World Bank in Washington.

The British, who recently announced a plan to guarantee billions of dollar worth of debt held by major banks, have been pitching that idea to the rest of the G7 members.

The idea behind all these ideas -- as well as bold steps previously announced in recent weeks -- is to get credit flowing more freely again.

In the United States, hard-pressed banks and investment firms are drawing emergency loans from the Federal Reserve because they can't get money elsewhere. Skittish investors have cut them off, moving their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers.

The lending lockup -- which is making it harder and more expensive for businesses and ordinary people to borrow money -- is threatening to push the United States and the world economy as a whole into a deep and painful recession.

In Europe, governments have moved to protect nervous bank depositors. Germany pledged to guarantee all private bank savings and CDs in the country, and Iceland and Denmark followed suit. Ireland went even further by also guaranteeing Irish banks' debts. The United States will temporarily boost deposit insurance from $100,000 to $250,000 in cases where its banks or savings and loans fail.

The Fed, meanwhile, has repeatedly tapped its Depression-era authority to be a lender of last resort, not only to financial institutions but also to other types of companies. Earlier this week, the Fed said it would buy massive amounts of companies' debts, in another unprecedented effort to break through the credit clog.

[HenryTo]

Word is that the Treasury may start to inject equity into US financial institutions by the end of this month:
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U.S. eyes bank equity stakes as world looks to G7
Thursday October 9, 2:18 pm ET

By Daniel Trotta and Karey Wutkowski
NEW YORK/WASHINGTON (Reuters) - The United States moved closer to taking equity stakes in banks on Thursday ahead of a G7 meeting of economic powers trying to stave off world financial ruin.

The Treasury Department plans to start directly injecting capital in U.S. banks as soon as the end of October, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.

It would be the latest step to combat the widening financial crisis in which major economies have rescued banks, injected massive amounts of liquidity into markets, agreed to take toxic debt off the books of financial institutions and slashed interest rates.

South Korea and Taiwan cut interest rates on Thursday following the coordinated cuts on Wednesday by major central banks including the U.S. Federal Reserve. Japan was considering other measures in the face of new recessionary signals.

Even so, U.S. stocks were largely trading down on Thursday and investors were still calling on politicians from the G7 and European Union to show they can cooperate more effectively.

The Dow and the S&P 500 were down more than 1 percent, diminishing hopes Wall Street would end a six-day losing streak in which share prices fell almost 15 percent.

European stocks lost more than 2 percent after trading higher much of the day.

Finance ministers and central bankers from the Group of Seven major industrial nations will meet in Washington on Friday, with International Monetary Fund Managing Director Dominique Strauss-Kahn calling for more coordination.

"The coordination that needs to take place is probably greater than the G7 itself. That's why it's important that this meeting is also the G20," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

"Given the fragility of market sentiment right now, a disappointment could further exacerbate the problem."

That has raised the question of what options remain for policy makers to combat the market meltdown, which has destroyed lenders from Wall Street to Iceland to Germany and left people worried about the security of their savings and jobs.

"If you scour the history books, (the steps taken or being considered) are the only policy options of last resort," said David Mackie, head of Western European economic research at JPMorgan.

"I can't think of what else people might come up with here. Various countries have done bits and pieces. Nobody has done all of them," he said.

"It's not entirely obvious that these measures are turning the tide," Mackie said. "At the end of the day, if you socialize enough of the financial system, it has to work."

Policy makers want to free up credit but have yet to overcome the lack of confidence that has virtually halted lending between banks. One option is for other countries to follow Britain's pledge to guarantee short-term interbank lending.

The cost of borrowing overnight cash fell on Thursday but longer-term funding costs stayed high.

TREASURY AS SHAREHOLDER?

The Treasury's bank recapitalization plan was an option included in the $700 billion rescue plan approved last week in which the government will buy bad loans from financial institutions in the hope that it will jump-start lending.

Treasury plans to inject capital in exchange for common and preferred shares and does not intend to seek board seats in the voluntary program, the source familiar with Paulson's thinking told Reuters.

The United States would be following the lead of Britain, which said on Wednesday it was prepared to inject 50 billion pounds ($87 billion) of taxpayer money into its banks and guarantee interbank lending.

EU states remained divided over the need to set up a financial supervisor with responsibility across Europe, and Paulson said a one-size-fits-all approach may not be right for members of the G7.

U.S. markets faced additional uncertainty after a ban on short-selling of financial stocks expired at midnight on Wednesday.

Short-sellers bet on falling stock prices and have been blamed for driving share prices lower, though advocates of the tactic say they were first to point out underlying weakness in financial firms.

[rffrydr]

IRS gets into the act. Repating dollars from corporate subsidiaries A.O.K

http://money.cnn.com/2008/10/07/news/economy/irs.ap/index.htm


More dollar support as money comes back home--just like japan!
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Got what it takes? Treasury's asset managers:

http://www.treas.gov/press/releases/reports/assetmanagers.pdf
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Today is the Tomorrow you worried about Yesterday!

[gregf]

[Texdan]

[nodoodahs]

Re-reading, I think I missed your question's finer point.

FT is more than half U.S. securitized assets were sold overseas.

I believe that European markets did the same thing as the U.S. in terms of substandard lending practices, securitization of loans and repackaging, models that underestimated default rates and delta-risk on the supersenior notes, and large segments of business focusing on the initiation of loans for resale. Although European banks are less transparent than in the U.S., I believe this shows itself in the property price run-ups in major markets like London, Madrid (and Spain in general), etc.
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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[nodoodahs]

Per the FT, more than half the securitized paper is offshore.

U.S. bailout allows purchases from foreign banks if they do business here in the states.

Discussion on Brit-based quant forums is that by this time next year there will have been a 700 bil Euro bailout. The action in the currency markets suggests (to me, at least) a consensus that the U.S. is ahead of the world in taking action on the problem.

Discussion on the conspiracy-theorist forums is that China got on the "red line" to Shrub and told him what would happen if foreign banks were excluded. The U.S. needs that market for Ts, so there's at least a grain of truth there.
_________________
He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.