Thread: A note of caution for those with deposits in US Banks

I have been affected somewhat by all of this. I have an IRA that I have had since I was 20 and have funded it every year. It has taken a considerable hit. I also have properties that have lost between 15 and 20% in value.

None of the financial crisis has really hurt my cash flow, just my net worth some. I am no expert on things, but I feel the bottom is near. My IRA will go up again and so will my property values. Might take time, but that is something I have plenty of.

The only regret I have is not moving my IRA to something more secure when I was thinking about it back in June. I don't want to move it now, because if I do then the fund will rise!

^Chi, if you had seen my thread in February, you would have acted by June. I am telling you now, the bottom is not near, not even close. Citi going under or being bailed will be the next milestone in this capitulation.

Righto, seeing as Butterfly has decided not to contest the Citibank issue (shame really, I had the day off tomorrow and was looking forward to some fun), more on the Citi demise:

Update 2: Sources with knowledge of the deal say government officials are now getting cold feet over the plan to buy the troubled assets from Citigroup.

Situation is still fluid and people close to the company say some sort of a deal will likely be worked out tonight. one other option being considered now is for the government to put money into citigroup.

The problem with buying the assets from citi is political: people close to the deal know that other firms will line up and ask the government to purchase their troubled assets as well knowing that all brokerage stocks got crushed when treasury secretary hank paulson reversed his plan on the tarp to direct capital infusions to the banks and away from buying troubled assets.

Bottom line: this is very fluid and the situation may change again, but as of now government getting cold feet on plan to buy troubled assets, which leaves direct capital infusion on the table.

Update: The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.

While the Feds could buy more than $100 billion nominally in the bad assets if the plans go through, that doesn't mean it will pay Citi $100 billion, depending on the final valuation of those assets. According to people with knowledge of the discussions between Citigroup and the government, the plan for Citi resembles the original TARP proposal, in which the government would buy bad assets for financial firms at some price higher than what's being offered in the market.
People close to the matter underscore that none of this is a done deal: Other deals, such as the Lehman Brother Good bank / Bad bank proposal blew up at the last minute. Citigroup had no immediate comment. CNBC is still waiting on comment from the Treasury and Federal Reserve.
Reports from Washington say the White House is unaware of any government talks with Citigroup. It also declined comment on whether President Bush would back a government rescue of Citigroup.

Citi officials are reportedly working on a plan that could include a capital injection from the Federal government—among other possible ideas. The details have yet to be hammered out and it's not clear when such a plan would be announced.

From:

Citigroup: Government Now Said To Have Cold Feet - Stock Market * US * News * Story - CNBC.com

Citigroup seeks 'emergency cash'


Cirigroup shares plunged on Friday as board members met


Executives of Citigroup, one of the biggest banks in the US, are in emergency talks with the US Treasury to gain much-needed funding, reports say.

The bank is also said to have contacted certain shareholders to assess their interest in increasing their stakes as as it faces an uncertain future.

Citigroup stock ended 20% lower on Friday as its board members met.
Last week the company announced 52,000 job losses worldwide on top of 23,000 job cuts previously announced.

No one from Citigroup was immediately available for comment.

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Options being discussed included a government cash injection as well as Citigroup selling some of its business, reported The Sunday Times.

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

He also reiterated that the firm had a robust capital position.

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, "Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days."

"The only one who comes to mind is the government," he said, adding that $50bn might ne needed.

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability. It is widely expected that Citigroup will issue a statement on Monday before the US markets open.

Source:

BBC NEWS | Business | Citigroup seeks 'emergency cash'


Note the $50BN - a greater amound than the FDIC 'pot'. Perhaps Butterfly will listen now.

Second thoughts - nah - no chance!

Originally Posted by bkkandrew

^Chi, if you had seen my thread in February, you would have acted by June. I am telling you now, the bottom is not near, not even close. Citi going under or being bailed will be the next milestone in this capitulation.

If I pulled my money out everything I heard or red something over the last 20 years, then I would have been in and out of the markets more times than I could count.

The thing is, instead of having a a nicely marbled rib eye for an IRA, I have a sirloin with the fat trimmed off it. I can say that the IRA has is funded almost equally to what is was 10 years ago. So the last 6 months wiped the last 10 years gains off the slate.

Like Thailand, I never have invested more than I was willing to lose. I have lost on riskier investments in years past, but looked at mutual funds as a long term safe investment.

I am a hell of an optimist person, so don't worry; be happy applies in this case. I can't take it with me anyhow and have a comfortable life as it is.

Another day another dollar is the saying, no?

Originally Posted by bkkandrew

Note the $50BN - a greater amound than the FDIC 'pot'. Perhaps Butterfly will listen now.

you mean like last time when you claim another bank will fail and bring down the FDIC ? you have no clue how the US banking system works, and no clue how FDIC is structured. You just read blogs and extrapolate from there with your funny imagination.

^Letting Butterfly continue in his state of denial, meanwhile, back in the real world:

Citigroup Gets Government Guarantees on $306 Billion of Assets

By Bradley Keoun

Nov. 24 (Bloomberg) -- Citigroup Inc. will have more than $300 billion of troubled mortgages and other assets guaranteed by the U.S. government under a federal plan to stabilize the lender after its stock fell 60 percent last week.

Citigroup also will get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and restore economic growth. The decision came after New York-based Citigroup’s tumbling share price sparked concern that nervous depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.

“It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”

Chief Executive Officer Vikram Pandit, 51, told employees on a Nov. 21 conference call that he doesn’t plan to break up the company. He and Chief Financial Officer Gary Crittenden said they don’t expect to sell the Smith Barney brokerage unit, two people who listened to the call said at the time.

Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, met the same day to discuss the bank’s options.

Citigroup issued a statement last week saying the company has “a very strong capital and liquidity position and a unique global franchise.”

From:

Bloomberg.com: Worldwide

Remember Citi's " off balance sheet liabilities" are to the tune of $1.28 trillion and their total outstanding liabilities around $ 3 trillion...

But the FED's 'solution' - throw $25BN, then $20BN, then $300BN, then...............

^ futures falling on that news

If the worlds banks are running on money they don't have and have lent out more than they can afford on the premise that the worlds wealth will just keep expanding forever at the same rate of the past 5 years,-- and so be able to pay back the money the banks have over-lent, then they deserve to fail.

These so called financial experts make everything sound so complicated that they are the only ones who can comprehend it. But in the end the worlds econemy runs just like any other budget, --- If you spend more than you earn, sooner or later you have to pay it all back. Or at least, somebody has to pay for it.

Originally Posted by bkkandrew

Citigroup Gets Government Guarantees on $306 Billion of Assets

so they are not going to go bankrupt after all and the FDIC with them ? how is that possible ? weren't you predicting another collapse of the bank just a few days ago ?

^As with AIG, the bailout just gets bigger and bigger, until it swallows the FED. They know they are too big to fail, but they are also too big to bail.

Report: Government prepared to lend $7.7 trillion

The U.S. government is prepared to provide more than $7.7 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt Sunday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.2 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some members of Congress are calling for the Fed to be reined in.

"Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about," said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. "The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones."

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.
The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

Continued here:

Report: Government prepared to lend $7.7 trillion | Chronicle | Chron.com - Houston Chronicle

$7.7TRILLION, eh? That's about half of their entire GDP to be used as bailout funds.

^ well technically debt is money, by participating in those markets, they will just control more money, might actually be interesting in terms of monetary policies, going beyond the T-Bill market

Citigroup collapses! Banking Shutdown Possible

by Martin D. Weiss, Ph.D. 11-24-08


It pains me deeply to announce that, despite the massive government rescue, yesterday’s collapse of Citigroup could ultimately lead to a shutdown of the global banking system.
For many years, I hoped this would never happen, and I thought we might be able to avoid it.

Indeed, that’s why, my firm, Weiss Research, first began rating the safety of the nation’s banks in the early 1980s, and why I later founded Weiss Ratings, a separate subsidiary dedicated exclusively to safety ratings — on thousands of banks, insurance companies, brokerage firms, mutual funds and stocks.

I subsequently sold the Weiss Ratings subsidiary to Jim Cramer’s organization, TheStreet.com; and today, my former company is called TheStreet.com Ratings. I continue to own and run Weiss Research, Inc., the publisher of Money and Markets. Moreover, Weiss Research continues to review all financial institutions for their safety; and to support that effort, we acquire TheStreet.com’s ratings and data for our analysts.

For you, the benefit is that you can now get these independent and accurate ratings for free on the Internet. Plus, you can check our free updated lists of the strongest and weakest bank and insurance companies on our Money and Markets website.

My philosophy was that, to find safety, your primary task was to identify the weak institutions, move your money to the strong ones, and then monitor them periodically to make sure your money was still safe. If all of us — savers, investors, bankers and banking regulators — used this kind of objective data to make rational, informed decisions, we would reward the safest institutions and help prevent the growth of the riskiest. Not only would we be safer individually, but our banking system as a whole would be more solid.

Unfortunately, however, that’s not how history has unfolded.

Few people were interested in bank ratings; they blindly assumed all banks were safe. And over the years, regulators have followed a parallel path. Rather than proactively restrict or shut down the weakest, large institutions, they have encouraged their massive growth, making it very difficult for the smaller, safer institutions to compete.

More recently, in the wake of the biggest financial failures in history — Bear Stearns, Lehman Brothers, Washington Mutual, Wachovia and others — rather than liquidate the failed firms’ bad assets, the authorities have been engineering shotgun mergers. The end result is that they have been sweeping most of the bad assets under the carpet of larger banks like Bank of America, Citigroup, and JPMorgan Chase, each of which already had abundant bad assets of its own. Adding insult to injury, Treasury Secretary Paulson’s decision this month — not to buy up the bad assets from many of these banks — has only heightened this concern. Rather than dispose of the toxic waste, the regulators have been rolling up the garbage to the larger banks.

And now, here we are, nearing the end of the road with the largest banks of all endangered and with no larger bank that can swallow them up. It’s a day of reckoning that leaves me no choice but to issue this three-part warning:

• Despite the U.S. government’s massive Citigroup bailout, it is going to be difficult for the global banking system to survive the shock to confidence for very long.
• Even if insured depositors do not pull out their funds, uninsured institutional investors are likely to run with their money, threatening to bring the system down.
• And alas, even if you have your money in a safe bank with full FDIC coverage, you could be adversely impacted.

How will the events unfold? That’s a massively complex question that demands an extremely cautious and thoughtful answer. That’s why, this past August, we devoted a full hour to this question in our “X” List video, naming the most likely candidates for bankruptcy. So let me review its primary conclusions and then take this discussion to the next level.

Most prominent on our August “X” List was Citigroup, America’s second largest banking conglomerate with over $2 trillion in total assets. The bank was already suffering crushing losses in mortgages. But at mid-year, it still had close to $200 billion in other mortgages on its books, denoting the strong possibility of many more to come.

In addition, Citigroup had a massive portfolio of credit cards — 185 million accounts worldwide — that we felt could be the final nail in its coffin. Even before the most recent episode of the global financial crisis, Citigroup’s losses on bad credit cards had surged by 67% from a year earlier. Worse, the number of credit cards 90 days past due was going through the roof, foreshadowing more large losses on the way. All of these weaknesses were detailed in Citigroup’s financial statements. Not detailed, however, was …

The Highly Dangerous Derivatives

Derivatives are bets made mostly with borrowed money. They are bets on interest rates, bets on foreign currencies, bets on stocks, bets on corporate failures, even bets on bets. The bets are placed by banks with each other, banks with brokerage firms, brokers with hedge funds, hedge funds with banks, and more.

They are often high risk. And they are huge. According to the U.S. Comptroller of the Currency (OCC), on June 30, 2008, U.S. commercial banks held $182.1 trillion in notional value (face value) derivatives.1 And, according to the Bank of International Settlements (BIS), which produced a tally six months earlier for the entire world, the global pile-up of derivatives, including institutions in the U.S., Europe and Asia, was more than three times larger — $596 trillion.2

That was ten times the gross domestic product of the entire planet … more than 40 times the total amount of mortgages outstanding in the United States … nearly 60 times greater than the already-huge U.S. national debt.

Defenders of derivatives claim that these giant numbers overstate the risk. They argue that most players hedge their bets and don’t have nearly that much money at stake. True. But that isn’t the primary risk these players are taking.

To better understand how all this works, consider a gambler who goes to Las Vegas. He wants to try his luck on the roulette wheel, but he also wants to play it safe. So instead of betting on a few random numbers, he places some bets on the red, some on the black; or some on the even and some on the odd. He rarely wins more than a fraction of what he’s betting, but he rarely loses more than a fraction either. That’s similar to what banks like Citigroup do with derivatives, except for a couple of key differences:

Difference #1. They don’t bet against the house. In fact, there is no house to bet against. Instead, they bet against the equivalent of other players around the table.

Difference #2. Although they do balance their bets, they do not necessarily do so with the same player. So back to the roulette metaphor, if Citigroup bets on the red against one player, it may bet on the black against another player. Overall, its bets are balanced and hedged. But with each individual player, they’re not balanced at all.

Difference #3. As I said, the amounts are huge — millions of times larger than all of the casinos of the world put together.

Now, here are the urgent questions that, as of today, remain largely unanswered:

Question #1. What happens if there is an unexpected collapse?

Question #2. What happens if that collapse is so severe it drives some of the key players into bankruptcy?

Question #3. Most important, what happens if these players can’t pay up on their gambling debts?

This is the question I have asked here in Money and Markets month after month. Almost everyone said it was far-fetched, that I was overstating the risk. Yet, each of the hypothetical events I cited in the above three questions have now taken place in 2008.

First, we witnessed the unexpected collapse of the largest credit market in the world’s largest economy — the U.S. mortgage market.

Second, we witnessed the bankruptcy or near-bankruptcy of three key players in the derivatives market — Bear Stearns, Lehman Brothers and Wachovia Bank.

Third, we also got the first answers to the last question: We saw the threat of a major, systemic meltdown in the entire global banking system.

Continued at length here:

Citigroup collapses! Banking Shutdown Possible | Money and Markets: Free Investment Email Newsletter

So who's going to pay for all this since the US government is already in debt to about 65% of GDP?

Oh, I get it now. After the $US looses half its trading value, the international debt will only have to be paid back at about 35% of GDP in actual goods and services. Even though the international debt will eventually be paid back in full as the numerical value in $USs, since all the debt is written in $USs. So, in the end other countries who have bought US debt will end up with about $5 trillion less in actual tangible goods and services compared to when they bought the $ debt. Sounds like a pretty good deal . Well, depending on where you live.

The US economy revives ahead of the rest of the world. Starts consuming imported goods until the bubble bursts again and around we go again until the ultimate financiers of the world economy (people who actually produce stuff) can give no more.

This world system of trade we have now is absolute madness based on debt and the confidence in paper money. But governments all over the world are in so deep with the $US that they are like the monkey with its fist in the jar of peanuts.
Do you know that one? Its how to catch a monkey based on his greed. You put some peanuts in a glass flagon which is tied to a tree. The monkey comes along and puts his hand down the neck of the flagon to get the peanuts. He grabs a handful of the prize but then cant get the closed fist out through the narrow neck of the flagon. The hunter then comes along and clubs the monkey because he is too greedy to let go of peanuts and escape. Game over. Hunter wins.

Originally Posted by Panda

So who's going to pay for all this since the US government is already in debt to about 65% of GDP?

At the risk of sounding like Scottie 'its worse than that - he's dead Jim' - it is actually worse than that.

The 65% figure is now more like 74% and rising fast on current, non-bailout-related expenditure. But crucially, as shown from my battles with Butterfly (threads passim), this excludes State and Municipal debt, which is perverse, as (demonstrated by recent events) they soon run to the FED when they run short of funds... If you added up that lot you would need a large calculator indeed.

Originally Posted by bkkandrew

Originally Posted by Panda

So who's going to pay for all this since the US government is already in debt to about 65% of GDP?

At the risk of sounding like Scottie 'its worse than that - he's dead Jim' - it is actually worse than that.

The 65% figure is now more like 74% and rising fast on current, non-bailout-related expenditure. But crucially, as shown from my battles with Butterfly (threads passim), this excludes State and Municipal debt, which is perverse, as (demonstrated by recent events) they soon run to the FED when they run short of funds... If you added up that lot you would need a large calculator indeed.

Oh well they still have the old printing press and plenty of buyers out there at the moment.
Shouldn't be too hard to raise a few $trillion more. The world is full of suckers at the moment.

The bond vigilantes are restive.

We are not yet facing a replay of the 1970s 'Gilts Strike', but we are not that far off either.

There is now a palpable fear that global investors may start to shun British debt as the budget deficit rockets to £118bn -- 8pc GDP -- or charge a much higher price for to cover default risk.

The cost of insuring against the bankruptcy of the British state has broken out -- upwards -- over the last month. Yes, credit default swaps (CDS) are dodgy instruments, but they are the best stress barometer that we have.

Today they reached 86 basis points, near Portuguese debt in the league table. For good reason. Alistair Darling has had to admit that the British economy faces the most sudden economic collapse since World War Two, and the worst budget deficit of any major country in the world.

Ok, this is a lot lower than Iceland, Ukraine, Hungary, and other clients of the IMF, but is significantly higher than Germany (35), USA (43), and France (49).

After trading at similar levels to our AAA-rated peers for years, we started to decouple in August and then began to soar in October.

We reached a fresh record the moment the Chancellor told the House of Commons that the budget would not return to its already awful condition until 2016.

Should we be worried? Yes.

Marc Ostwald from Insinger de Beaufort said Gilt issuance would reach £146bn in fiscal 2008/2009. Britain will have to borrow £450bn over the next five years.

This is an utter fiasco.

With deep embarrasment, I plead guilty to supporting the Brown-Darling fiscal give-away -- though with a clothes peg clamped on my nose. As the Confederation of British Industry and many others have warned, we face an epidemic of bankruptcies unless we tear up the rule book and take immediate counter-action.

The Bank of England's drastic rate cuts are a necessary but not sufficient stimulus. Monetary policy is failing to get traction because the credit system has broken down.

We face the risk of a rapid downward spiral if we misjudge the threat at this dangerous moment, as we sit poised on the tipping point. Besides, the whole world is now resorting to fiscal stimulus in unison under IMF prodding. Sticking together is imperative. If countries reflate in isolation, they can and will be singled out and punished. That is the lesson of 1931.

But this is not to excuse the Brown Government for the total hash it has made of the British economy. It presided over a rise in household debt to 165pc of personal income. How could the regulators possibly think this was in the interests of British society? What economic doctrine justifies such stupidity? Why were 120pc mortgages ever allowed? Indeed, why were 100pc mortgages ever allowed? Debt is as dangerous as heroine.

Labour ran a budget deficit of 3pc of GDP the top of cycle. (We had a 2pc surplus at the end of the Lawson bubble, so we go into this slump 5pc of GDP worsee off). The size of the state has ballooned from 37pc to 46pc of GDP in a decade, and will inevitably now rise further.

It is because Gordon Brown exhausted the national credit limit to pay for his silly boom that today's fiscal stimulus -- just 1pc of GDP (China is doing 14pc) -- is enough to rattle the bond markets. Our national debt will jump in what is more or less the bat of an eyelid from under 40pc of GDP to nearer 60pc -- according to Fitlch Ratings. It is enough to make you weep. But is this bankruptcy territory? Not yet. Britain will remain at the mid to lower end of the AAA club.

A Fitch study today estimates the "fiscal cost" of the bank bail-outs (which is not the same as just adding guarantees to the national debt) is 6.9pc of GDP for Britain -- compared to Belgium (5.7pc), Germany (5.8pc), Netherlands (6.3pc), and Switzerand (12.9pc). We are not alone in this debacle.

If and when the storm blows over, Britain should still have a lower national debt than Germany, France, or Italy. It will certainly have a better demographic structure that most of Europe (except France and Scandinavia), and less catastrophic pension liabilities than most.

The situation is desperate, but not serious -- as the Habsburgs used to say. Fingers crossed.

From:

Whoops! Browser Settings Incompatible

Its not just the USA - The UK is also effectively bankrupt - don't forget that...

Fed Commits $800 Billion More to Unfreeze Lending (Update1)
By Scott Lanman

Nov. 25 (Bloomberg) -- The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.

Aid for Housing

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.

Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.

The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.

On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.

ABS Program

Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.

Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.

The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.

Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.

In full from:

Bloomberg.com: Worldwide

The policy appears to be 'throw money at it, no matter what the cost'. It is bizarre that the FED has the power to be able to announce a cumulative bailout to the tune of $1.1 Trillion dollars in just 2 days, when the original TARP program only came to $700 Billion and that program had to be passed by Congress and that deliberation proved to be one of the most contentious in the history of US Government. Also, the FED's Christmas gifts are being allocated for what was originally intended by TARP.

All in all, it is the desperate last throws of a bankrupt entity.

Originally Posted by S Landreth

The Federal Deposit Insurance Corp said the industry-funded reserve to back deposits was $34.6 bln as of September 30, a 23.5 percent decrease from the previous quarter.

And remember this $34BN is 'protecting' the $600BN of deposits at the insolvent Citigroup...

The penny drops that all this Government borrowing cannot be funded:

Published: December 1 2008 02:00 | Last updated: December 1 2008 02:00

Fears are rising over the ability of governments to raise the vast amounts of debt they need to pay for economic stimulus packages and bank bail-outs.

Faced with the prospect of governments around the world issuing more than €2,000bn ($2,535bn) of bonds in the next year, bankers are warning of potential problems in meeting funding needs.

Roger Brown, global head of rates research at UBS, said: "Governments are already running into problems, which does not bode well so early after the recapitalisations and extra funding needs have been announced.

"We do have to ask whether there will be enough investors to buy the bonds, or at the very least whether this will push yields substantially higher to attract them. Given the volumes involved investors may decide to wait and see if yields rise."

...The UK and Italy may face the greatest difficulties. The UK is expected to issue £10bn ($15.3bn) of bonds this month. In the past, monthly volumes have averaged about £2bn a month. The government is also expected to issue £60bn in the remainder of the financial year to the end of March - more than it would previously issue in an entire year.

FT.com / UK - Concerns grow over ability of states to raise debt

All these governments giving money to their bankers and no one to borrow it from.
Might as well be monopoly money unless these countries can start producing tangible goods of some real value to trade.

Originally Posted by bkkandrew

Originally Posted by Panda

So who's going to pay for all this since the US government is already in debt to about 65% of GDP?

At the risk of sounding like Scottie 'its worse than that - he's dead Jim' - it is actually worse than that.

The 65% figure is now more like 74% and rising fast on current, non-bailout-related expenditure. But crucially, as shown from my battles with Butterfly (threads passim), this excludes State and Municipal debt, which is perverse, as (demonstrated by recent events) they soon run to the FED when they run short of funds... If you added up that lot you would need a large calculator indeed.

More on this - Arnie says "I'll be back", but this time, he is referring to the FED for a bailout!

The governor of California, Arnold Schwarzenegger, has declared a fiscal emergency, amid fears the state could run out of cash by early next year.

He has ordered lawmakers to hold a special session to tackle the $11.2bn (£7.5bn) deficit in California, one of the world's biggest economies.

Across the US, state tax revenues are down because of the economic slump.

State governors are to meet President-elect Barack Obama later on Tuesday to press the case for federal help.

Governor Schwarzenegger on Monday invoked powers allowing him to declare a fiscal emergency as the new state legislature was sworn in.

"Without immediate action, our state is headed for a fiscal disaster," Mr Schwarzenegger said, saying that the current $11.2bn shortfall could swell to "a staggering $28bn" over the next 18 months.

"I compare the situation that we are in right now to finding an accident victim on the side of the road that is bleeding to death," the Republican governor told a news conference in Los Angeles.

"We wouldn't spend hours debating over which ambulance we should use, or which hospital we should use...No, we would first stop the bleeding, and that's exactly the same we have to do here."

He said the state was already drawing up plans to lay off public employees.

Spending cuts

Under the fiscal emergency, lawmakers have 45 days to pass legislation addressing the budget crisis. If they miss the deadline, 15 January, they have to stay in session without considering any other business until agreement is reached.

The previous state legislature failed to reach agreement on a series of spending cuts and tax increases.

However, the elections in November produced little change in the legislature's political make-up, with the Democrats three seats short of the two-thirds majority needed to pass fiscal measures.

"It's our job as legislators with working the governor to try to make a major dent in the problem, and we can only do so by cutting expenses and by raising addition revenue," the Senate president, Democrat Darrell Steinberg, told the BBC.

But Republicans indicated their continued opposition to both Mr Schwarzenegger's and the Democrats' proposals.

"This is not blind ideology on the part of Republicans, but our sincere belief that higher taxes will hurt the economy and lead to more uncontrolled spending," Republican minority leader Mike Villines said.

Governors from across the US are set to meet Mr Obama later on Tuesday in Philadelphia to discuss ways of tackling the budget shortfalls many states are experiencing.

"Without federal help...what we will have to do is just make continuing cuts and/or raise taxes, both of which would have further deleterious effect on our states' economy. We simply need help," Pennsylvania Governor Ed Rendell said.

But as he left for the National Governors' Association meeting in Philadelphia, Mr Schwarzenegger said he would not be asking for federal help until California's lawmakers addressed the budget crisis.

"The federal government shouldn't give us a penny until we straighten out our mess and we can live within our means," he said.

BBC NEWS | World | Americas | California 'faces budget crisis'